House committee zeroes in on removal of VAT breaks
THE HOUSE of Representatives Ways and Means committee on Wednesday trained its guns on value-added tax ( VAT) exemptions targeted for revocation in order to offset revenues to be foregone from tax cuts elsewhere.
In his presentation before the committee, Finance Undersecretary Karl Kendrick T. Chua said that the country needs to “clean” its VAT system of “numerous exemptions leading to large leakages.”
VAT accounts for about 16% of annual tax take under the government’s revenue program, the second biggest tax revenue source next to levies on international trade and transactions.
Mr. Chua said the Philippines provides 59 lines of exemptions compared to just 37 in Indonesia, 35 in Thailand, 25 in Vietnam, and 14 in Malaysia.
House Bill No. 4774, or the proposed “Tax Reform for Acceleration and Inclusion” filed by House Ways and Means committee chairman Rep. Dakila Carlo E. Cua ( Quirino), aims in part to repeal VAT exemptions in special laws, including for cooperatives, lowcost and socialized housing, lease of residential units, domestic shipping importation as well as for boy scouts and girl scouts of the Philippines.
At the same time, the revised first tax reform package retained the VAT exemption of senior citizens and persons with disabilities, which Department of Finance ( DoF) had sought to remove in its original proposal to Congress in September last year.
Mr. Chua said that the DoF is pushing for a national ID system “that is secured with biometrics as the basis for availing of the incentives” by seniors and PWDs, estimating that the country loses around P10 billion “because of leakage availed by non-seniors.”
Yesterday’s hearing saw representatives of sectors affected by the planned revocation of VAT exemptions make their appeal.
Cooperative Development Authority Undersecretary Orlando R. Ravanera said that “tax exemptions are granted to cooperatives to enable them to compete with corporations and other businesses at least for the first few years of their operation.”
But DoF’s Mr. Chua said that “the majority of the co-ops who are below the threshold and who sell raw agricultural produce continue to be exempted, so that the impact would be much less.”
Representatives of the real estate sector said the “biggest problem of house buyers is affordability,” with Charlie A. V. Gorayeb, national president of the Chamber of Real Estate and Builders’ Associations, Inc., citing the need to improve projects’ “affordability level… so [more] low-income [families] can afford to buy a home.”
Mr. Gorayeb said he found it “strange that we always look at the easier way, and what is it? … remove the incentives — that’s the easier solution.”
Mr. Chua said VAT exemption is “not the best way” to help the housing sector.
“Instead of providing… [ VAT] subsidy to the developers or the contractors, we prefer to give it directly to the real beneficiaries,” said Mr. Cua, referring to the phased reduction in personal income tax rates in this first package of tax reforms.
The DoF had submitted to Congress in September last year the first of four to five packages of tax reform – consisting of a cut in personal and corporate income tax rates that will be matched by reduced VAT exemptions, as well as increases in excise taxes on automobiles and on petroleum products — but its configuration has since changed.
House leaders have cited a preference for moves to improve tax administration before resorting to new or increased levies.
The entire tax reform program aims to make the poor pay less and the rich pay more, while yielding net additional revenues to support the government’s infrastructure build and priority socioeconomic reforms.
The latest configuration of the first package, for instance, is projected to forego P139.6 billion and collect P302.1 billion, yielding P162.5 million in net additional revenues.
HB 4774 was filed on Jan. 17, four months after the original tax package was submitted. The bill now includes tax efficiency measures such as mandatory fuel marking, mandatory issuance of electronic receipts, mandatory linkage between firms’ point of sale machines and the Bureau of Internal Revenue’s system.
Yesterday also saw BIR Deputy Commissioner Jesus Clint O. Aranas saying that the bureau will do away with the “name-andshame” approach the previous administration had wielded.
Mr. Aranas said the current Run After Tax Evaders ( RATE) program, which he leads, has changed its tack, arguing that the previous strategy had been ineffective in encouraging compliance.
“Why would I want to do that? It’s very restrictive to business,” he explained.
“I’d like the business to trust the BIR. We’re trying to win public trust,” he told reporters, saying: “We adopt a different policy. I’m not criticizing the previous admin, but I’m totally different.”
“It’s useless. I don’t want to make a [press conference] on the RATE cases we filed,” Mr. Aranas added. “There are data already out there; I don’t want to divulge unnecessarily the investigations we’re doing against them.”
However, he said his group will continue filing charges against tax evaders.
“We have already filed cases under my watch — when we started, maybe around 20. There are SMEs (small and medium enterprises) and big companies,” Mr. Aranas said. — and