MANILA, September 28, 2005
 (STAR) By Donnabelle Gatdula - The Department of Finance (DOF) is hopeful that the Supreme Court will soon lift its temporary restraining order (TRO) on the expanded value-added tax (EVAT) law.

Finance Secretary Margarito Teves said this tax measure is a crucial part of the government’s efforts to put the country’s fiscal house in order.

"Several provisions of (the EVAT) law are designed to cushion the impact of rising global oil prices on domestic consumer prices," he said.

These provisions include the VAT zero-rating on power from renewable energy sources such as hydro and geothermal energy, which account for 57 percent of the country’s total energy supply. The law also reduces the excise tax on kerosene, diesel and bunker fuel.

"The government is doing everything to lighten the burden of (EVAT) on the poor. But we have to bite the bullet now if we are to achieve fiscal consolidation that will bring lasting benefits to our people," Teves said.

The EVAT law was in effect for less than one day last July 1 when the Supreme Court issued the TRO after four petitions were filed by petroleum dealers, motorists’ associations and opposition lawmakers. The government was expecting to generate P28 billion in revenues from EVAT during the last six months of this year.

Though the Supreme Court ruled last Sept. 1 upholding the constitutionality of the EVAT law, the petitioners who earlier sought the TRO filed a motion for reconsideration. The SC has yet to rule with finality on the case.

The EVAT is expected to boost the government’s infrastructure program, with capital outlays rising from two percent of gross domestic product at present to 2.7 percent next year. GDP represents the local output of the country’s economy, excluding export earnings and remittances from overseas workers.

Teves said the EVAT, together with other revenue-enhancing measures, would help cut the national government’s budget deficit by P35 billion next year.

"This will make the economy less vulnerable to interest rate and foreign exchange movements and help generate investor confidence," Teves said.

He also noted that when Congress passed the law this year, the stock market immediately improved, investments rose, the peso appreciated, and domestic interest rates dropped.

The national government’s budget deficit will widen to P208 billion in 2006 if the EVAT law will be suspended indefinitely, a UBS Securities Singapore Pte. Ltd. report said.

Based on the UBS study, the government will incur deficits of P208 billion in 2006 if the new EVAT law is suspended indefinitely.

However, the study indicated that if EVAT provisions removing tax exemptions are implemented starting this October, and the remaining provisions starting January 2006, the budget gap will fall to P170 billion, vis-à-vis the target deficit of P180 billion for this year.

UBS estimated that the budget gap would drop to P125 billion in 2006.

Another scenario projected by UBS is if the EVAT on power and petroleum products were removed but all other parts of the bill remained in place. The budget deficit, under this second scenario, would hit its target of P180 billion. For 2006, the gap in the budget would then be at P170 billion.

"The 2005 budget deficit is below target, and the loss-making power company, National Power Corp. (Napocor), is reportedly breaking even this year. All of this even before the implementation of the EVAT bill. What sounds like a very compelling macro backdrop for Philippine assets only holds true if the EVAT bill gets implemented at least partially, and if there is no significant pressure on interest and exchange rates going forward," the research firm said.

UBS said the government has to do something about this legislative measure because it cannot always resort to budget cuts in order to contain widening budget gaps.

"We think the reduction in the budget deficit through spending cuts has its limits. Non-interest spending is already heading for a record low of 12 percent of GDP this year, down three percentage points since 2002. And the 2006 budget foresees the first modest increase in investment spending and wage costs in four years," it said.

Meanwhile, the Supreme Court (SC) ordered the government yesterday to submit within five days its comment on the motion for reconsideration filed by those opposing the controversial Republic Act 9337, or the EVAT law.

In a press conference, Supreme Court assistant administrator and spokesman Ismael Khan Jr., said the SC justices agreed during their regular session yesterday to give President Arroyo, the Department of Finance (DOF), the Bureau of Internal Revenue and the Office of the Solicitor General until Oct. 3 to submit their comment on the motions for reconsideration filed last Sept. 19 by minority bloc congressmen led by House Minority Leader Francis Escudero, Bataan Gov. Enrique Garcia, the petroleum dealers’ association, the party-list group Abakada-Guro and Senate Minority Leader Aquilino Pimentel Jr.

"The justices of the Supreme Court would then tackle the EVAT on October 4 again, including the comment to be filed by the government on October 3," Khan said, noting that this means that the indefinite TRO will remain until the high court issues its final ruling.

He added that the five non-extendable days the Supreme Court gave the government means "there is more to study regarding the law."

Khan said the justices may issue a decision three weeks after Oct. 4.

The DOF said it is losing P130 million a day or about P4 billion to P5 billion every month due to the suspension of the EVAT law.

But Garcia, in a motion for reconsideration he filed last Sept. 19, said the government can still collect the same amount of revenue if it imposes the three-percent gross tax instead of the seven-percent cap on input VAT without burdening the people as much.

In a separate motion for reconsideration, Escudero said the SC should permanently enjoin the implementation of EVAT because it was promulgated in gross violation of the Constitution.

Escudero said the deletion of the "no pass-on" provisions for the sale of petroleum products and power generation services, which would have stopped power and oil companies from passing on the VAT to consumers, constituted grave abuse of discretion on the part of the bicameral conference committee.

He said the EVAT law grossly violates the constitutional provision stating that "all revenue bills shall originate exclusively in the House of Representatives."

Escudero also questioned the standby authority given to Mrs. Arroyo, which allows her to increase the EVAT from 10 percent to 12 percent by Jan. 1 next year, upon the recommendation of the finance secretary.

He said the standby authority given the President and the recommendatory power of the finance secretary constitute "undue delegation of legislative authority."

Escudero said the high court’s findings that the bicameral panel did not commit grave abuse of discretion when it deleted the "no pass-on" provision rested on the perception that there was a disagreement between House Bill 3705 and Senate Bill 1950 with regard to this particular provision.

He argued there was no conflict between the House and Senate versions, therefore no deletion should have been made by the bicameral conference committee. — With Jose Rodel Clapano

Chief News Editor: Sol Jose Vanzi

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