VAT exemption for key commodities seen as negative for peso


A BILL seeking to exempt key commodities from value-added tax (VAT) carries the risk of weakening the peso by calling into doubt the government’s capacity to meet its obligations, a senior legislator said.

“(The proposed measure) is going to make things worse, not better,” Albay Rep. Jose Ma. Clemente S. Salceda told reporters via Viber message. “That’s because tax cuts cast a shadow of doubt on the ability of a state to maintain its operations and honor its debts.”

With a weaker peso, “we will have to pay more for our imports, and our imported inputs, like fuel, will also be more expensive in peso terms. So, we have to be careful about a VAT cut,” he added.

Mr. Salceda was responding to the Makabayan bloc-sponsored House Bill 5504, which seeks to remove VAT sales of basic food commodities like bread, canned goods, instant noodles, biscuits, sugar, oil, salt, candles and drugs.

“Much of the inclusions in the Makabayan bloc proposal are already VAT exempt,” he added. “That includes sugar, beef, fish, salt, charcoal, and firewood.”

The removal of VAT will result in foregone revenue of P86.4 billion, he added.

Mr. Salceda, who also chairs the committee on ways and means, put forward a fertilizer subsidy, farmer aid and imports of 300,000 metric tons (MT) of refined sugar as alternative solutions.

“We can make sugar cheaper by importing 300,000 MT of refined sugar, which is more or less our structural deficit. (This will) also make biscuits and bread cheaper,” he said.

China Banking Corp. Chief Economist Domini S. Velasquez said she prefers targeted subsidies to relieve the pressure from high prices.

“The problem with an across-the-board removal of a certain tax is that first, it erodes much-needed revenue, and, second, it benefits even those who can afford to pay for it,” she said in a Viber message. “In the recent world economic outlook, the International Monetary Fund even recommended the use of targeted subsidies in (dealing with) this cost-of-living crisis.”

Nicholas Antonio T. Mapa, ING Bank N.V. Manila senior economist, said that although the proposed measure can alleviate price pressures for basic goods, it may run counter to fiscal authorities’ efforts to consolidate their debt given the impact of such on the government’s revenue stream.

“One compromise would be to intensify and expand existing subsidies for targeted households which may not cover all those who may need but could possibly strike a balance to still chase fiscal consolidation while still recognizing the need to provide support to our citizenry,” he said in an e-mail.

The proposed measure was filed on Oct. 10 by Party-list Representatives Arlene D. Brosas, France L. Castro and Raoul Danniel A. Manuel. — Kyanna Angela Bulan