THE chairman of the House Committee on Ways and Means on Thursday warned against the unintended consequences of the proposal exempting sugar and other commodities from the 12-percent Value-Added Tax (VAT).
Albay Rep. Joey Sarte Salceda said the proposal that has been filed by the Makabayan bloc of lawmakers in the Lower Chamber will only make inflation worse.
Salceda issued his statement after the House Bill (HB) 5504 was filed by the lawmakers. The bill seeks to scrap VAT on the importation and sale of the following: bread; canned goods; instant noodles; biscuits; sugar (raw and refined); cooking oil; salt; laundry soap and detergents; charcoal; and, candles. It also seeks to exempt the imposition of VAT on the sale and importation of drugs classified as essential by the Department of Health.
Salceda poured cold water over the proposal.
He said while the Committee will study them, “we are of the disposition that the government needs more, not less revenues.”
“It’s going to make things worse, not better. When the British government announced its largest tax cuts in 50 years, the British pound also slid to all-time lows against the dollar. That’s because tax cuts cast a shadow of doubt on the ability of a state to maintain its operations and honor its debts,” the economist-lawmaker said.
“Peso weakness is not yet our fault: we’re still fundamentally strong,” Salceda added. “And, in any case, the peso is getting stronger against other major currencies like the yen, euro, or the pound. But the moment we cut taxes, the resulting peso weakness will be our fault.”
Lawmakers have to be careful about a VAT-cut proposal, he opined.
“We will have to pay more pesos for our imports and our imported inputs, like fuel, will also be more expensive in peso terms,” he said.
Salceda also reminded his colleagues they have also committed to President Ferdinand R. Marcos Jr. that “all expenditures, spending or tax, will have to be matched by corresponding new revenues.”
“And the current proposals are not backed by new sources.”
Farm subsidies
SALCEDA said he believes that the government should instead focus on providing “fertilizer subsidies to help address our food supply issues.”
“Good fertilizers are still the most cost-effective way to increase food supply, even despite higher fertilizer costs.”
According to the lawmaker, doing so will lead to an increase in farm input costs by around 6 percent to 12 percent.
“But it increases yield by around 65 percent.”
Salceda said the President should focus more on this intervention.
He also urges his colleagues “to help find ways to fund more farm input support for farmers, instead of tax cuts.”
“Because, even if we cut taxes, we’ll still have to face structural food constraints,” said Salceda. “And worse, we won’t have the money to deal with them.”
The lawmaker said he will also consult counterparts in agricultural agencies in Thailand, Taiwan and other regional neighbors “to see how else the country can mitigate inflation with improved food security.”
Salceda has been travelling to the Philippines’s fellow-members in the Association of Southeast Asian Nation to meet investment managers and government leaders during the session break.
He said he’ll report the outcome of these talks to Marcos.
Already-exempted
SALCEDA said much of the inclusions in the Makabayan bloc proposal are already exempted from the VAT like sugar, beef, fish, salt, charcoal and firewood.
He added that many prescription drugs are also already VAT-exempt as provided by Republic Act (RA) 10963 (Tax Reform for Acceleration and Inclusion, or Train, law) and RA 11534 (Corporate Recovery and Tax Incentives for Enterprises, or Create, law).
Salceda noted that the other items in the proposal that are not VAT-exempt are canned goods, bread, biscuits, soaps and candles. He said These amount to around P719.9 billion in total sales, or a loss of around P86.4 billion in tax revenues.
But Salceda said the government can make sugar cheaper by importing 300,000 metric tons of refined sugar, which is more or less the industry’s structural deficit.
“That will also make biscuits and bread cheaper. Canned goods benefit from the reduced tariffs on mechanically-deboned meat. That reverts from 5 percent to 40 percent by the end of 2022, so we have to study that.”
Salceda further schooled the Makabayan bloc of lawmakers by explaining that what is taxed with VAT and excise tax is sweetened beverages, which the health department “discourages anyway for health reasons, specifically obesity and diabetes.”
Policy cocktail
SALCEDA warned of dire consequences if the government doesn’t undertake budget cuts or raise new revenues to support the revenue loss.
“We may suffer a credit rating downgrade, loss of peso confidence. The Medium Term Fiscal Framework will also be extremely difficult to achieve,” he said.
“This kind of policy cocktail just makes the peso feasible at P68.”