MANILA, PHILIPPINES - THE Philippines reported a lower-than-forecast first-half budget deficit of 18 billion pesos (S$533 million) as it benefited from higher revenues, the finance department said on Wednesday.

The surplus in June was 800 million pesos - about the same as that reported for the same period last year.

The government earlier abandoned its target of balancing the budget this year, saying it would likely incur a 45 billion-peso deficit due to increased subsidies for the poor amid rising food and fuel prices.

Officials told Dow Jones Newswires the goal was likely to be met if the second half performance matched that of the first six months.

Meanwhile, President Gloria Arroyo on Wednesday again rejected calls to scrap a 12 per cent sales tax on oil products and electricity, saying the removal of the tax will deny the government subsidy funds.

'If the VAT (value-added tax) on oil and power is lifted, how do we replace more than 70 billion pesos in revenues mostly used to fund projects for the poor?' she said at an event to distribute energy-saving light bulbs to cut down electricity consumption.

The sales tax, imposed on the energy sector in 2005, had improved the government's fiscal performance, a key concern among investors and credit rating agencies. However a number of legislators are looking at amending the law.

'The VAT has boosted investor confidence in recent years', Mrs Arroyo said.

'The removal of the VAT would erode confidence, weaken the peso against the dollar, lead to higher interest rates and costs, and in turn slow down the economy'. -- AFP