Arroyo braces for backlash over controversial tax hike

Updated On: May 27, 2005

Manila – She’s damned if she does, and damned if she doesn’t. But President Gloria Arroyo - who has had to fend off plenty of coup rumours in recent weeks - decided to bite the bullet by signing a controversial tax measure which will further increase the prices of basic commodities.

    On May 24, she signed the Expanded Value-Added Tax of 2005, which keeps the VAT at 10 per cent but gives the President the authority to raise it, under certain conditions, to 12 per cent by January 2006. It also increases the corporate income tax from 32 per cent to 35 per cent.   
    The law forms part of the package of government measures to improve the country’s fiscal condition and reverse the credit rating downgrade some credit rating agencies have given the Philippines. 
    “The signing of the amended (VAT) bill caps the first phase of the Arroyo administration's economic reform agenda," Finance Secretary Cesar Purisima said. 
   “It is a milestone piece of legislation that will significantly broaden our tax base this year and the next."  
    However, opponents of the bill said the VAT hike would further burdened the poor. Businesses are also against the law, saying it would raise operation costs and spark company closures.
    Mr Astro del Castillo, managing director of First Grade Holdings, said the law was a "possible disincentive to certain foreign investors" who would balk at the country's 35-per cent corporate income tax, one of the highest in the region.  
    Political analyst Benito Lim told The Straits Times: “This will definitely anger an already angry public. But if the President did not raise taxes, the country could face a possible financial collapse. She is in a bind.”

* Controversial VAT bill finally a law (Philippine Daily Inquirer, May 25)

* Arroyo signs tax Bill into law despite public outcry (The Straits Times, May 25)