The Philippine Supreme Court ruled on Thursday that a broader sales tax was legal, ending two months of uncertainty over the centrepiece of President Gloria Macapagal Arroyo's plans to cut the country's reliance on debt.
The court's justices ruled that the expanded value-added tax was constitutional, paving the way for an annual 84 billion peso ($1.5 billion) boost to government coffers that should sharply reduce the country's hefty budget deficit.
The broadening of the tax had been frozen for two months by the court pending its ruling.
The freeze will remain until the court has ruled on any appeals against Thursday's decision, which must be filed within 15 days.
Francis Escudero, an opposition leader, said the opposition would appeal the ruling but was not optimistic they could reverse the decision.
The lifting of tax exemptions on a wide range of goods and services is set to make life harder for millions of Filipinos already feeling the strain from record-high oil prices.
Congressman Joey Salceda, an economic adviser of Arroyo, said the expanded sales tax may be implemented on October 1.
The law also gives the president the authority to raise the VAT rate to 12 percent from 10 percent from next January.
Economists, who had broadly expected the freeze to be lifted, said the law was a painful but necessary step towards wiping out a $3.2 billion budget deficit and cutting the country's debt burden, payments on which swallow a third of state spending.
The law also raises the corporate income tax to 35 percent from 32 percent for three years, with the rate falling to 30 percent after 2009.
The government expects the broader tax to help it cut its budget deficit to about 125 billion pesos next year or 2.1 percent of gross domestic product, sharply down from its target of 180 billion pesos, or 3.4 percent of GDP, this year.
It sees extra revenues of 7.5 to 10 billion pesos this year.
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