MANILA, February 2, 2006
 (BULLETIN) By LEE C. CHIPONGIAN - Now that the expanded value added tax has been raised to 12 percent, finance officials have turned their attention to plugging the estimated P50-billion a year VAT leakage, beginning with zero-rated and tax-exempt sectors of the business community.

Finance Secretary Margarito B. Teves said VAT collection is only 70 percent efficient and in 2005, about thirty to forty percent of collection was lost to faulty tax administration policies. The official numbers have yet to be finalized.

"As for the VAT leakages, we will start looking at zero-rated and VAT-exempt companies," said Teves.

Bureau of Internal Revenue Commissioner Jose Bunag for his part said the agency has began instituting new measures to enhance collection efficiency. "We’re still determining how much VAT we lost last year but before that, the ratio is 30-40 percent of collection is lost," he said.

Teves said the government tax collecting agencies would have to work doubly hard to produce the P75 billion additional revenues needed to plug the budget deficit for 2006.

He added the DoF would have to focus on improving tax administration and corking the leakage from the VAT.

Part of improving tax administration is to go after the VAT leakage, whom Teves estimate between P50 billion to P100 billion a year. The government lost P41.7 billion last year in potential revenues due to gaps or leakage in the collection of the VAT. The National Tax Research Center said 30 percent of VAT, which is a consumption tax, was uncollected because of these gaps.

In 2004 the BIR collected P139 billion from VAT. About P41.7 billion was the estimated leakage. In 2003 VAT collected amounted to P135 billion. Based on their third party audit and tax compliance system the BIR said undeclared VAT totaled P225 billion in the last two years. DoF would be applying 70 percent of the proceeds of expanded VAT this year to help reduce budget deficit.

US interest rates raised as Greenspan bows out spacer By JITENDRA JOSHI

WASHINGTON, Feb. 1 (AFP) — The Federal Reserve bade farewell to its acclaimed chairman Alan Greenspan Tuesday with a 14th successive hike to US interest rates, but left his successor with room to rejig monetary policy. The final meeting of the Federal Open Market Committee (FOMC) with Greenspan, 79, in the chair agreed to raise the benchmark federal funds rate by a quarter point to 4.5 percent. That is its highest level since mid-May 2001.

The Senate overwhelmingly voted to confirm White House economic advisor and former Fed governor Ben Bernanke, 52, as Greenspan’s successor shortly after the FOMC meeting concluded. "Although recent economic data have been uneven, the expansion in economic activity appears solid," the FOMC said in a statement. "The committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," it said.

That was a softening from the December meeting, when the FOMC said "some further measured policy firming is likely to be needed." The FOMC dropped the phrase "measured" from its statement to describe future policy action, in a step taken as leaving flexibility for Bernanke. "The change from ‘likely’ to ‘may be’ takes away any strong signal they’ll be raising rates," said Barclays Capital economist Dean Maki.

"If there’d be a strong signal either way, that would have constrained Bernanke," he said, forecasting that the new Fed chairman would stage another hike at his first FOMC meeting on March 28 before calling a pause.

The word "measured" had been interpreted as meaning the Fed was on course for a gradual series of rate increases. By dropping it, Greenspan has given his successor some room for maneuver.

The FOMC statement also said: "Core inflation has stayed relatively low in recent months and longerterm inflation expectations remain contained. "Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures."

Greenspan bowed out after more than 18 years in which he has steered the US central bank through economic golden years punctuated by recession and financial crisis.

Befitting Greenspan’s undemonstrative style, a low-key farewell was scheduled with the Fed governors holding a luncheon in his honor before a reception attended by past and present staff. Tuesday’s rate increase was expected by economists, but there was much speculation about what kind of policy prescription Greenspan would leave for Bernanke to inherit.

With the world’s biggest economy enjoying a sustained economic expansion, the Greenspan Fed has been bringing rates back up from historic lows that were put in place to counter a 2001 recession. The Fed has hinted that the campaign is drawing to a close, and economic data out Friday showing fourthquarter growth of just 1.1 percent had led some to speculate the Fed would call a halt sooner rather than later. Mesirow Financial chief economist Diane Swonk also predicted that the fed funds rate would peak at 4.75 percent in March.

"Although many people look at the statement and are disappointed there wasn’t more wiggle room, the FOMC set the stage to say we may raise rates, not will, and that policy is now entirely dependent on the data to come," she said. "The statement gives Bernanke more scope for flexibility than some have given credit," Swonk added.

With oil prices again approaching record highs, there is price pressure building in the industrial pipeline that would justify Bernanke taking a hawkish stand on entering office. He may also want to establish his inflation-busting credentials as the world gets used to life without Greenspan.

Comerica chief economist Dana Johnson said the old and new Fed chairmen shared the fundamental goal of keeping inflation at bay. "If he’s true to that perspective, I think we’re going to find that monetary policy looks an awful lot like it did under Greenspan for the next several years," he said.

Chief News Editor: Sol Jose Vanzi

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