Tax reform won’t touch OFW remittances, DoF says

THE FINANCE department said its tax reform program will steer clear from imposing Value-Added Tax ( VAT) on overseas remittances, but clarified that it will continue to tax the transfer fees charged by remittance companies.

“We have to distinguish between the foreign and the domestic remittances. Those coming from abroad are not within our tax regime, so that is not [ covered] (under the CTRP),” Finance Undersecretary Karl Kendrick T. Chua said in a statement.

“Let me be clear, it’s not a VAT on remittance, it is VAT on the money transfer like all other services which has been VAT- able from before,” said Mr. Chua.

Despite leakages from the remittances — as transfer fees for domestic remittances have long been subject to VAT which has not been fully collected by the Bureau of Internal Revenue (BIR) — the Finance department was advised by the tax bureau to clarify the matter through regulation.

“The [money] transfers are being done in any kinds of businesses like pawnshops. Now, they are also into money transfers. This is the gray area or loophole that we are correcting. But we were advised by the BIR .... to just clarify it through a regulation,” said Mr. Chua.

Legal and tax experts have previously agreed that because such transfer fees are not explicitly exempt from VAT under the National Internal Revenue Code, then the rules should be amended to subject the fees to consumption tax.

BIR said that a revenue regulation would suffice, to remind companies that transfer fees on domestic remittances are subject to VAT.

The comprehensive tax reform program, or the Tax Reform for Acceleration and Inclusion ( TRAIN), aims to broaden the VAT base by rationalizing tax exemptions given to some sectors, while reducing personal income tax rates but offsetting them with higher excise taxes on petroleum and automobiles.

The Finance department said it will seek to persuade the Senate to pass the department’s version of the bill after the House’s version cut projected net revenue from the first package by some P23.4 billion — nearly 15% — to P133.8 billion in the first year of implementation from the P157.2 billion estimated originally by the department. Specifically, it will push to remove cooperatives from the list of VAT-exempt entities, and the indexation to inflation of the excise tax rates.

From P133.8 billion in the first year, House Bill 5636 will yield P233.6 billion in 2019, P272.9 billion in 2020, P253 billion in 2021 and P269.9 billion in 2022.

The tax reform is expected to help reduce the poverty rate from 21.6% in 2015 to 14% by 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle-income status. Achieving this higher income status will require raising the country’s per capita gross national income from $3,550 in 2015 to at least $5,000 by 2022, or close to where Thailand is now.