Senator Pia Cayetano. INQUIRER FILE PHOTO
MANILA, Philippines—Reducing the value added tax on electricity to ease the burden on Filipino consumers could mean losses in government revenue but gains amounting to tens of billions of pesos in the country’s gross domestic product as lower tax rate would encourage new businesses, Senate Majority Leader Alan Peter Cayetano said over the weekend.
Cayetano has been pushing for a “floating” VAT rate that would remain at 12 percent when the prices of electricity and fuel are not very high but would go down to at least six percent when such prices shoot upward.
Saying the government must not profit from the people’s misery, Cayetano cited a 2008 study conducted by former National Economic Development Authority chair Dante Canlas that showed cutting VAT and natural gas royalties would reduce the government’s tax collection by P13.8 billion.
The same study showed, however, that cutting the value added tax would also result in new investments that would add up to P62 billion more to the gross domestic product.
“And P62.35 billion in terms of GDP will give us P8.72 billion in terms of taxes and almost P1 billion in terms of additional non-tax revenues,” Cayetano told reporters on Friday, “meaning, the losses that the government would suffer would be quite small while the gains would be quite huge,” Cayetano added.
Citing a study conducted by American aid agency USAID, Cayetano said reducing VAT and natural gas royalties “can bring down the price of power by P1.40 kwh.”
Cayetano indicated that attracting more businesses with lower power costs would contribute greatly to the government’s program to make its economic gains felt by more Filipinos.
“Remember, every time the government says that the economy is getting better or that credit ratings are being upgraded, the government admits that the problem with the growth is that it’s not inclusive; that only the rich get even wealthier,” Cayetano said.
“One way of addressing the inclusiveness and joblessness problems is to lower the price of electricity so that we can get the kinds of industries like manufacturing that we need,” Cayetano added.