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Last Updated: Wednesday, 1 February 2006, 07:07 GMT
Philippines tax hike takes effect
By Sarah Toms
BBC News, Manila

Women protest against the higher VAT and oil price increases in Manila
The higher sales tax is unpopular with many Filipinos
A higher sales tax has come into force in the Philippines, where it is expected to hit consumers already struggling with rising fuel costs.

President Gloria Arroyo's government says raising the value-added tax (VAT) rate from 10% to 12% is a key reform.

The tax hike is unpopular, but analysts say it is essential for the government to raise revenues and cut its debt.

They say the higher VAT will raise the chances of the Philippines getting an upgrade from credit rating agencies.

Last year the agencies cut their outlooks to negative over concerns about delays to the reforms as the president battled allegations of vote rigging.


The government expects extra revenues of about $1.4bn (790m)) this year after it expanded the items covered by VAT last year, and then raised the rate on Wednesday.

But the broader and higher tax has proved deeply unpopular as millions of impoverished Filipinos try to cope with higher fuel, electricity and transport costs following a surge in global oil prices.

Leftist groups held small protests around the country against the VAT changes.

Filipinos rushed to shops and petrol stations on Tuesday to stock up before the rate went up.

When Mrs Arroyo was elected to a fresh term in 2004 she vowed to put the country's financial house in order.

But if the economy is to see any real results, she must also improve tax collection, which, because of corruption and evasion, is among the lowest in Asia.

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