business is slow
I join the whole Philippines today in protest as we hear of the latest news that the expanded value added tax or EVAT will be increased from 10% to 12%. The law, which has removed VAT exemption of certain sectors, including oil and electricity, allows the President to raise the tax rate when two conditions are met: that the VAT collection as a percentage of the gross domestic product exceeded 2.8 percent the previous year, and that the budget deficit as a percentage of the GDP exceeded 1.5 percent in 2005. Finance Secretary said Monday that the government met both requirements, with the budget deficit at 2.7 percent of the GDP and the VAT collection at 2.9 percent of the GDP. The measure is undertaken in the hope to raise 75 billion pesos in additional revenues this year. This is expected to help the government limit this year's budget deficit to 125 billion pesos ($2.27mil). The deficit last year was 146.5 billion pesos ($2.66mil). The national government is optimistic that the VAT rate hike will help it balance its budget by 2008 and reduce its debt to 51 percent of GDP by 2010 from around 81 percent in 2005.
With this hike traders are expected to raise prices...and with higher prices mean slower business activity, just like the picture above.
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