DOF willing to lower VAT, with conditions

Eliminate all exemptions

The Department of Finance (DOF) is willing to lower the current value-added tax (VAT) rate as long as Congress will remove all the exemptions from the consumption levy.

Finance Secretary Carlos G. Dominguez III said the government should ensure first that its fiscal position will not be affected once the current VAT rate of 12 percent is reduced.

Dominguez explained that despite the Philippines being among highest in VAT in Asia, its revenues as a percentage of gross domestic product (GDP) are lagging behind compared with its neighbors.

The finance chief attributed the inefficient VAT collection on several exemptions given by Congress.

“As I said many times, the VAT rate here is 12 percent and we only collect (from that) 4.7 percent as a percentage of GDP. In Thailand, VAT is only 4.7 percent and they collect 4.7 percent,” Dominguez told reporters.

“I mean if we can bring up our collection rate say to seven percent by eliminating exemptions, of course we are open to reducing the rate of the VAT,” he added.

Dominguez also said that “VAT has been used as a fiscal incentive which is really wrong. There is no other country in the world which has so many exemptions.”

Earlier, Senator Risa Hontiveros filed a bill to reduce the existing 12 percent VAT rate back to 10 percent effective January next year.

Hontiveros said Senate Bill No. 1671 seeks to provide relief for the lower economic deciles of the population affected by the tax reform law, or the first comprehensive tax reform package (CTRP) measure.

The senator also proposed that VAT will be reduced again to eight percent should the previous year’s collection reach 4.5 percent of the GDP.

The DOF has yet to come up with its computation as to how much revenues will be lost once Hontiveros’ bill is passed into law and the current exemptions are kept by Congress.

“We have to be very careful about reducing the VAT rate,” Dominguez said. “We haven’t calculated that [impact] yet but definitely we have to look at all the alternatives.”

In 2016, the DOF estimated that the government was losing about R5 billion in revenues annually due to VAT exemption leakages alone.

Currently, there are about 80 VAT exemptions under the national internal revenue code.

If Congress decides to remove these exemptions, the DOF estimated that it would result in R60-billion additional revenues.

In 2017, the DOF had proposed to overhaul the VAT system and broaden its base through the removal of the exemptions through the first package of the CTRP.

Congress, however, decided to keep several VAT exemptions, including those for senior citizens and persons with disability.