BUSINESS GROUP WARNS  TAX FAILURE COULD CAUSE FISCAL CRISIS

MANILA, July 6, 2005
 (STAR) (AFP) - Business leaders warned Wednesday that a Supreme Court injunction against President Gloria Arroyo's key tax reform measure could drive the Philippines closer to a financial crisis.

The court on Friday indefinitely suspended the collection of an expanded value-added tax (VAT) that took effect on the same day, citing a challenge on its legality.

The government promptly appealed the interim ruling but the court voted to keep the injunction in place on Tuesday pending a hearing on the issue.

The Makati Business Club, a group of business leaders based in Manila's financial district, expressed "grave concern and disappointment with the Supreme Courts decision", calling it "a big setback to the governments effort to raise revenues as part of its fiscal reform program."

It called for a swift resolution of the VAT issue "in order to avert a serious fiscal crisis from getting even worse in the near future."

The tax is a key reform initiative for Arroyo, who said Tuesday she would welcome an impeachment trial so she can refute opposition allegations she cheated in last year's presidential elections.

Finance Secretary Cesar Purisima has said the government stood to lose five billion pesos (88.8 million US dollars) a month in revenues.

The ruling "comes at an urgent time when the country needs to put in place every revenue enhancement and cost management measure to plug an increasing budget deficit," the Makati business group said.

"On top of the revenue losses, the Supreme Courts decision once again sends negative signals to investors about the instability and unpredictability of economic policy and legislation."

Cora Guidote, a senior economic adviser to President Arroyo, said international ratings agencies Fitch and Standard and Poor's have "expressed concern about a prolonged delay" in the tax collection as it would "weaken the country's fiscal reform program, which, in turn, could erode investor confidence."


Reported by: Sol Jose Vanzi

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