Government won’t seek more tax adjustments

Finance officials said the Arroyo administration will not lobby for any more tax adjustment legislation until after 2007 when the government’s fiscal position has demonstrated sustainable consolidation.

Finance secretary Margarito B. Teves said the Arroyo administration had the burden of proof to show Congress that it has established a track record for effective collection, administration and spending.

"We had just made a major adjustment," Teves said, referring to the increase in the value-added tax (VAT) rate from 10 to 12 percent.

"There is a lag time between that increase and the time that it would take for the benefits to trickle down to the economy."

According to Teves, the Arroyo administration would have a difficult time getting Congress to consider any more tax adjustment measures that would effectively increase the current tax burden until it has established a track record.

"Maybe after 2007 when we have a clearer view of how we are handling the recent tax increases," he said.

The Department of Finance (DOF), however, was still making a case for Congress to rationalize the fiscal incentives granted to businesses.

This legislative measure, however, is expected to be far more contentious than the increase in the VAT rate, especially since exporters will be affected.

The DOF has been quietly pushing for the adjustments in individual income tax system, specifically for the possible exemption of low-income earners from the tax net.

The Arroyo administration has decided to exempt low income earners from withholding taxes but this would still require them to pay their income taxes at the end of the fiscal year.

On the other hand, there is also pressure from the International Monetary Fund (IMF) to consolidate and rationalize its fiscal incentives over the medium term.

According to the IMF, the government need not focus on giving industries fiscal incentives since the money could be better spent providing basic support that improve competitiveness over the long term.

The IMF has not taken any specific position on how the government should rationalize and consolidate its fiscal incentives program but the Fund continued to stress that this task would have to be done soon.

The government, through different administrations dating back to deposed president Joseph Estrada, has been mulling this consolidation but there has been no agreement on how it could be done.

At present, the pet concept is to identify specific high-impact and high-return industries that seriously need government assistance in order to succeed or survive.

However, the IMF said meager government resources are better spent on basic support with longer-term impact such as infrastructure.