, February 1, 2006, (MALAYA) THE increase in the rate of the value added tax to 12 from 10 percent takes effect today after President Arroyo yesterday decided to exercise her power to do so under the reformed VAT law (RA 9337) of 2005.

Executive Secretary Eduardo Ermita, in a memorandum, told Finance Secretary Margarito Teves that his recommendation to raise the rate has been approved by President Arroyo.

Copies of the order were given to Internal Revenue Commissioner Jose Mario Buñag and Customs Commissioner Napoleon Morales.

Under RA 9337, Arroyo could raise the VAT rate to 12 percent if VAT collections as a percentage of gross domestic product (GDP) in 2005 year exceeded 2.8 percent and if the deficit as a percentage of GDP exceeded 1.5 percent.

(Related story on PHNO Business Section)

Teves said actual VAT collection for 2005 was 2.9 percent of GDP and the 2005 budget deficit was 2.7 percent of GDP.

Press Secretary Ignacio Bunye said protest actions are expected but he asked VAT critics to give the additional consumption tax a chance to boost the government’s fiscal reforms.

He said the authorities are prepared to handle protests.

Bunye said the 10 percent rate also sparked protests and questions were raised before the Supreme Court but it proved beneficial to the economy.

He rejected proposals to postpone the rate increase in view of the impending oil price hikes, saying people have to "take a look at the overall picture."

He said government is adopting measures against price gouging.

In Nueva Ecija, President Arroyo said government will import sugar in order to discourage hoarding.

Arroyo said the importation would only be temporary and "just to show these hoarders that they’re not going to make money out of hoarding."

Prices of sugar rose late last week due to rising world prices and the expected increase in the VAT rate.

She said the 2 percentage increase is "very small if you have to be arithmetical about it."

She ordered the trade department to closely monitor the prices of other basic commodities and prosecute traders who try to take advantage of the increased VAT rate.

"If there are sudden, unusual increases in prices, they are not justified," she said.

The Office of the Press Secretary has ordered the withholding of an additional 3 percent tax from payments to consultants and contractual personnel for professional services rendered effective Jan. 1, 2006.

The OPS action is expected to be followed by the rest of government agencies.

Cornelio Baliao, OPS assistant secretary for administration and finance, said the higher withholding is contained in a BIR memorandum circular dated Nov. 2, 2005. – Regina Bengco

Chief News Editor: Sol Jose Vanzi

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