Economist-lawmaker Joey Salceda has warned against proposals to exempt sugar and other commodities from Value Added Tax, saying that such a move must be carefully reviewed as it will worsen the country’s situation.
The Albay solon made this remark a day after the three-members of the Makabayan bloc in the Lower House filed House Bill 5504, seeking to exempt basic commodities — such as bread, sugar, and cooking oil — from the 12 percent VAT.
The Makabayan’s proposed measure, if enacted, would amend the Tax Reform Act of 1997 and include the VAT exemptions in Section 109.
“Peso weakness is not yet our fault — we’re still fundamentally strong, and in any case the Peso is getting stronger against other major currencies like the Yen, Euro, or the Pound. But the moment we cut taxes, the resulting peso weakness will be our fault,” Salceda, House Ways and Means Committee chairperson, said Thursday.
The British pound likewise fell to all-time lows versus the dollar, as was the case when the British government announced the largest tax cuts in 50 years, according to Salceda, pointing out that big tax cuts and the VAT exemption would only make things worse.
He said this is because tax cuts raise questions about a state’s capacity to continue operating and pay its debts.
“We will have to pay more pesos for our imports, and our imported inputs, like fuel, will also be more expensive in peso terms,” the solon said, warning that the VAT cut should be carefully reviewed.
Opting for fertilizer subsidies
The veteran solon stressed that to help the country with its food supply issues, the government should go for fertilizer subsidies rather than a reduction in the VAT.
According to the legislator, good fertilizers are still the most economical approach to boosting the food supply, despite rising fertilizer costs. It will also increase farm input costs by roughly 6 to 12 percent, but it will also enhance yield by about 65 percent.
“If we don’t do budget cuts or raise new revenues to support the revenue loss, we may suffer a credit rating downgrade, loss of peso confidence,” Salceda warned, emphasizing that achieving the Medium Term Fiscal Framework will also be extremely challenging.
He said this kind of policy cocktail makes the peso feasible at P68.