Munich Personal RePEc Archive

The Value Added Tax and Red Tape: What Contributes More to Electricity Tariffs in the Philippines

Clarete, Ramon (2016): The Value Added Tax and Red Tape: What Contributes More to Electricity Tariffs in the Philippines. Forthcoming in: Electricity Policy in the Philippines: Generation, Institutions, and Prices No. Stand-alone book to be published by the University of the Philippine Press (2019)

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Abstract

Among several factors that may explain why electricity in the Philippines is expensive compared to other ASEAN member states, this paper zeroes in on two: the value added tax (VAT) and red tape in obtaining generation business permits. Legislators have raised the timeliness of lifting just the VAT on electricity to reduce electricity prices. This study however observes that red tape may contribute three times more than the VAT to making electricity costly in the country. The study uses a computable general equilibrium (CGE) model of the Philippine economy to explore the relative contributions of the two to electricity price, and simulate their economic effects. Besides reducing electricity prices, streamlining and shortening the business permitting process for new generation companies in the country will make the economy more efficient and raise the revenue from VAT.

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