An ‘out with the old’ VAT exemption

In September, the Department of Finance (DOF) submitted the first of six tax reform packages to Congress. The first package proposes to adjust the income tax brackets and to lower individual income tax rates, except for high earners who will be taxed at 35%. But while this proposal will generally result in less income tax paid by individuals, it will also mean reduced revenue collection for the government.

To mitigate this anticipated effect, the Dof also proposes certain offsetting measures. These include adjustments in the excise tax rates for petroleum products and automobiles, and the expansion of the value-added tax ( VAT) base by removing current exemptions under existing tax laws.

Last month, the Senate Committee on Ways and Means held its first public hearing on the Dof-sponsored bill covering the first tax reform package. Various government agencies and affected sectors and organizations, including the Tax Management Association of the Philippines and our firm, were invited to express their sentiments and comments.

As may be expected, most representatives opposed the proposed increase in excise taxes, the 35% personal income tax rate, and the removal of the VAT exemptions if such measures would affect their particular sector, organization, or special group of people. But one particular organization — the Coalition of Services of the Elderly (COSE) — surprised me in its support of the DOF proposal to remove the VAT exemption of senior citizens.

Although their statement was qualified as not being the official and collective position of the entire group, the COSE representative mentioned that they are amenable to the removal of the VAT exemption of senior citizens provided that pensions and other direct incentives and subsidies are given and/or increased, and made available to replace the lost exemption.

Other senior citizen groups may have other sentiments on the matter. As the removal of this VAT exemption is a sensitive issue, perhaps these other elderly groups can also voice out their concerns. As one senator put it during the hearing, this matter is an emotionally charged issue since the elderly believe that the exemption currently granted is something they have earned having paid their dues for so long.

While I understand that the objective of the proposed tax reform is to adhere to the principle of equity and simplification, there is also the principle of compassion (which was also mentioned by one senator) that needs to be considered.

Compared to other member countries of the Association of Southeast Asian Nations (ASEAN), we are the only country that gives VAT exemptions to senior citizens. While others may consider conforming to the other ASEAN countries on this matter (and remove the VAT exemption enjoyed by senior citizens), I am proud that the Philippines is unique enough to give this privilege as a sign of our respect to the elderly.

The VAT exemption is granted by Republic Act No. 9994, otherwise known as the “Expanded Senior Citizens Act,” with the following declared policies and objectives:

• To recognize the rights of senior citizens to take their proper place in society and make it a concern of the family, community, and government;

• To give full support to the improvement of the total well-being of the elderly and their full participation in society, considering that senior citizens are an integral part of Philippine society;

• To motivate and encourage senior citizens to contribute to nation building;

• To encourage their families and the communities they live with to reaffirm the valued Filipino tradition of caring for senior citizens;

• To provide a comprehensive health care and rehabilitation system for disabled senior citizens to foster their capacity to attain a more meaningful and productive ageing; and

• To recognize the important role of the private sector in the improvement of the welfare of senior citizens and to actively seek their partnership.

No less than the Constitution requires the State to prioritize the needs of the elderly, particularly in terms of health development, as well as social justice in all phases of national development. The State likewise values the dignity of every human person and guarantees full respect for human rights.

If we would take a look at the intention of the Expanded Senior Citizens Act, Congress gave the VAT privilege as a sign of our Filipino value of caring for senior citizens, regardless of social status.

While I understand that COSE might have as its primary objective the creation of, if not better, pensions and subsidies, why can’t we just provide these pensions and subsidies without sacrificing the VAT exemption of senior citizens? In fact, there are other alternatives where the government can get its revenue collections.

One of the things that I admire in the new administration is how it aims to address the long overdue reform of the tax laws. I can see why the people elected President Rodrigo R. Duterte. A lot of Filipinos feel his sincerity in bringing change to the Philippines by eradicating crime, primarily those relating to illegal drugs, fighting corruption in the government, strengthening foreign relations particularly with China and Japan, and protecting the underprivileged. Filipinos generally see President Duterte for his heart.

I genuinely support the tax reform initiatives of the government. I believe that the DOF listens to each stakeholder that will be affected by the proposed tax reforms. But more than just listening, I do hope that it will also have the heart to reconsider repealing the VAT exemption given to the elderly.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.