June 01, 2005 | By Keith Martin in Washington, DC
THE PHILIPPINES increased the corporate tax rate and scrapped valued added tax exemptions for energy companies. The country acted after budget deficits forced several downgrades of its sovereign credit rating, making borrowing more expensive and sparking rumors that it is in danger of defaulting on its debts.
A new law signed May 24 increases the corporate tax rate from 32% to 35%. President Gloria Arroyo had also asked Congress to increase the rate for value added taxes, but the politics of such a rate increase were too difficult. Value added taxes are like sales taxes that hit home quickly as voters do their shopping. Instead, Congress gave Arroyo standby authority to increase the VAT rate from 10% to 12% in 2006 if more revenues are needed.
Congress scrapped VAT exemptions enjoyed by various industries, including private power companies and oil refiners. At the same time, it eliminated a “no pass-on provision” that would have barred independent power companies from passing through VAT to consumers.