Senate bill hopes to cut VAT rate to 10%, eventually to 8%

SENATOR Ana Theresia HontiverosBaraquel filed a bill on Tuesday seeking to reduce the Value Added Tax ( VAT) rate from 12% to 10% in response to the effects of Republic Act (RA) 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Ms. Hontiveros filed Senate Bill 1671, which will be known as the Bawas VAT Act of 2018 if passed, amending sections 106 to 109 and 112 of RA 8424 or the Tax Reform Act of 1997.

The sections of the Tax Reform Act tackle VAT imposed on the sale of goods or properties, importation of goods, the sale of services and use or lease of properties as well as VAT- exempt transactions and tax credits.

If the bill is passed, the measure hopes to implement the reduced VAT rate by Jan. 1, 2019.

By Jan. 1, 2022, the bill also seeks a further reduction in the VAT rate to 8% if the previous year’s revenue from VAT, as reported in the budget of expenditures and sources of financing submitted to Congress, is equal to or exceeds 4.5% of gross domestic product (GDP).

In her explanatory note, Ms. Hontiveros said the proposed measure will “provide relief for the lower economic deciles of the population by lowering the VAT rate to 10%.”

“As our tax system becomes more efficient and corruption is weeded out by our modernizing revenue bureaucracy, we will want to rely less on taxes that are easily passed on to final consumers, such as the Value-Added Tax ( VAT),” she said.

Ms. Hontiveros also noted that the bill also sought to align the country’s tax system with that of the Association of Southeast Asian Nation (ASEAN).

The proposed measure contains a trigger for VAT collections at the 10% rate; if the total hits 4.5% of GDP, that will pave the way for a further reduction “to achieve full alignment with the ASEAN norm of 8%.” —