DOF: OFW remittances not covered by tax reform
Money sent home by overseas Filipino workers (OFWs) is not subject to enhanced collection measures under the administration's proposed Comprehensive Tax Reform Program (CTRP), the Department of Finance (DOF) said Wednesday.
In an emailed statement, the DOF noted that Finance Undersecretary Karl Kendrick Chua has issued the clarification – during separate congressional hearings – that the government has no legal jurisdiction over money transfers from abroad.
The department said Chua is basically responding to erroneous reports that OFW remittances would be taxed under the first package of the CTRP, which is contained in House Bill No. 5636.
In separate hearings of the Senate and House ways and means committees, Chua noted the government has jurisdiction only over domestic remittances, which are not actually taxed as the value-added tax (VAT) is not imposed on the amount of money involved but only on transfer fees charged by money transfer companies.
“We have to distinguish between foreign and domestic remittances. Those coming from abroad are not within our tax regime, so that is not covered under the CTRP,” Chua said.
Under existing tax laws, transfer fees in domestic remittances have long been subjected to the VAT but are not collected fully by the Bureau of Internal Revenue (BIR).
“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,” Chua noted.
To plug the loophole, Chua said legal and tax experts have agreed that because the transfer fees are not explicitly exempted from the VAT under the National Internal Revenue Code, such fees must be subjected to the consumption tax.
He said the BIR has advised the DOF that there is no need to amend the Tax Code to do this, and that a revenue regulation is all that is required to remind companies that transfer fees on domestic remittances are VAT-able.
The tax laws applicable to remittances hinge on the country of origin of the remittance, Chua noted.