The benchmark Philippine Stock Exchange (PSE) index tumbled 79.50 points, or 4.2 percent, to settle at 1,815.67 yesterday, its worst performance in six months, adding to 7.5 percent loss in the past five sessions on anxiety over rising oil prices and allegations that President Arroyo rigged last year’s election.
Aiming to balance the budget by 2010, Arroyo’s administration in May decided to increase the number of products and services subject to the 10 percent tax to include petroleum products, electric power, airline and shipping fares. Arroyo has made the plan to the centerpiece of her economic reform policy.
The Supreme Court on Friday moved to freeze the new tax’s implementation after opponents of the tax petitioned the court to halt the process, arguing that it was unconstitutional for president to increase the VAT without lawmakers’ approval.
"If the people could hardly cope with the rising prices of goods and services ... you could imagine the intolerable sufferings they will face once VAT is jacked up," said opposition Sen. Aquilino Pimentel, adding the new tax "could be a prescription for a social revolt."
The court gave each side 10 days to comment, with oral arguments set for July 26.
Government lawyers said they would file a motion Monday to challenge the Supreme Court’s temporary restraining order.
Corazon Guidote, presidential consultant on investor relations, said the expanded VAT was part of the country’s medium-term development plan and "we cannot afford any more setback."
Finance Secretary Cesar Purisima estimated that temporary suspension of the VAT law will cost the government up to P5 billion pesos ($54 million; euro45 million) a month.
"This can result in a serious setback in our fiscal consolidation program. That’s why we are going to appeal with the Supreme Court," he said, adding the freeze, although temporary, was enough to erase the government’s fiscal gains this year.
The government is considering adjusting its budget deficit projection for this year as the result of the VAT suspension, Purisima said.
"There’s a possibility we might adjust our fiscal numbers," he told reporters.
"The cure for our fiscal problem has suddenly been withdrawn. Another cloud of uncertainty has loomed over our heads," said Astro del Castillo of First Grade Holdings. – AP, AFP