Press Releases

Salceda: Big tax cuts, VAT exemptions to make inflation worse; Salceda favors fertilizer subsidies, farmer aid over VAT cuts

October 13th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) warned against the unintended consequences of cuts to VAT and other taxes as a slew of proposals to exempt sugar and other commodities from VAT have been filed in Congress.

“It’s going to make things worse, not better. When the British government announced its largest tax cuts in 50 years, the British pound also slid to all time lows against the dollar. That’s because tax cuts cast a shadow of doubt on the ability of a state to maintain its operations and honor its debts.”

“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.”

“We will have to pay more pesos for our imports, and our imported inputs, like fuel, will also be more expensive in peso terms. So, we have to be careful about a VAT cut.”

Salceda poured cold water over proposals to exempt certain commodities from VAT, saying that while the Committee will study them, “we are of the disposition that the government needs more, not less revenues.”

“We have also committed to the President that all expenditures, spending or tax, will have to be matched by corresponding new revenues. And the current proposals are not backed by new sources.”

Go for fertilizer subsidies instead

Salceda says that instead, he believes that the government should focus on “fertilizer subsidies to help address our food supply issues.”

“Good fertilizers are still the most cost-effective way to increase food supply, even despite higher fertilizer costs. It will increase farm input costs by around 6-12%, but it increases yield by around 65%. I would urge PBBM to focus on this intervention. I would also urge my colleagues to help find ways to fund more farm input support for farmers, instead of tax cuts.”

“Because, even if we cut taxes, we’ll still have to face structural food constraints – and worse, we won’t have the money to deal with them.”

Salceda says he will also be engaging in a series of conversations with counterparts in agricultural agencies in Thailand, Taiwan, and other regional neighbors to see how else the country can mitigate inflation with improved food security.

“I’ll be reporting to the President on these conversations soon,” Salceda, who has been travelling to ASEAN countries to meet investment managers and government leaders during the session break, added.

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