DOF: Lower VAT rate possible
If gov’t succeeds in plugging tax leakages
A LOWER value-added tax (VAT) rate on goods and services, now pegged at 12 percent, is possible once the government is able to clean up the tax system and plug leakages arising from the myriad of exemptions from this consumption tax, according to the Department of Finance (DOF).
DOF Undersecretary Karl Kendrick Chua said Thailand, which has a VAT of 7 percent, collects the same amount of revenues from this tax as the Philippines does despite its lower rate because of fewer exemptions.
Thailand, he said, has only 35 lines of exemptions while the Philippines has 59 lines of exemptions in the tax code and 84 special laws with VAT exemptions.
The revenue share as a percentage of Gross Domestic Product (GDP) from the VAT is the same at 4.2 percent for both the Philippines and Thailand despite the former’s higher tax rate, he added.
“Our proposal really is to clean up the VAT system. Over time, once we have addressed the exemptions, we may reduce the VAT rate. We will do it step by step,” Chua said at a recent Senate hearing of the ways and means committee on the DOF’s proposed Comprehensive Tax Reform Program (CTRP).
“Our strong belief is that the moment we have exemptions and a multitude of exemptions, it multiplies the opportunity for discretion, and therefore corruption and tax evasion,” Chua said.
Chua said that because Thailand has already done the basics of making its tax system simpler, fairer and more efficient, it can afford to provide its citizens lower tax rates, and corporate investors the tax incentives that would entice them to relocate there.
“Thailand can afford this because it has done the basics many years ago but we have not,” said Chua.
“We have a dual system, we have high tax rates for half of the population and half of the population pay very little [because] of incentives, exemptions. So our tax system really is very inequitable in that sense. What we want to do as with the VAT is really to broaden the base so that it is fairer to everyone,” Chua added.
Chua said even with the fiscal incentives given by the government to private businesses, the Philippines remains behind Thailand in terms of per capital gross national income because the fundamentals—good governance, adequate infrastructure, public service efficiency—remain lacking.
“And that is I think, very linked to the fact that as of today, we have only collected 13.8 percent of our GDP in taxes while in Thailand, its 17 percent,” he said.
The House of Representatives approved Tax Reform Acceleration and Inclusion Act (TRAIN) or HB 5636—by a 246-9 vote with one abstention last May 31 before the Congress’ sine die adjournment.