Gov’t reviews business perks

Comparatively, Indonesia has a VAT efficiency level of 0.50 with an 11 percent VAT rate, Singapore achieves a level of 0.71 with an 8 percent VAT rate

President Ferdinand Marcos Jr. is studying fiscal incentives reforms with the Department of Finance as part of his administration’s efforts to boost economic growth, Finance Secretary Benjamin Diokno said during a Malacañang press briefing on Tuesday.

This, after data from the International Monetary Fund Tax Reform Database showed that the Philippines posted the lowest VAT efficiency ratio in the Southeast Asian region from 2016 to 2020, or 0.40 efficiency level despite having the highest VAT rate in the region at 12 percent.

Comparatively, Indonesia has a VAT efficiency level of 0.50 with an 11 percent VAT rate, Singapore achieves a level of 0.71 with an 8 percent VAT rate, Vietnam maintains a level of 0.70 with an 8 percent VAT rate, and Thailand has a level of 0.79 with a 7 percent VAT rate.

Highest rate vs other countries

“The Philippines (has) the highest VAT rate compared to other countries in this part of the world but our VAT collection is the most inefficient,” Diokno said.

“We only collect 40 percent (of all expected VAT collection), and that’s because of a lot of exemptions,” Diokno pointed out.

The DoF also cited a 2018 World Bank study which said that the Philippines’ tax system faces challenges due to exemptions granted outside the tax code.

According to the Finance chief, the government collected P723 billion from VAT annually from 2016 to 2020 on average.

BBM issues order

Diokno said the President has instructed the DoF to review the country’s fiscal incentives system to ensure that it is effective and efficient.

He added that the government will lose collection revenues when it gives more tax incentives and exemptions.

Prior to tax reforms, the Philippines have 56 lines of exemptions and an additional 84 exemptions under special laws, he added.

“We actually talked with the International Monetary Fund and we asked them to conduct a study on where we can improve on broadening the tax base meaning maybe find areas where we can recover from too much exemptions,” Diokno said.

“I say at 0.40, that’s really poor performance, but you know the value-added tax is the best tax in the world. It’s I think being imposed in 90 percent of the countries in the world, so it is in our best interests to improve on the efficiency of the VAT,” he added.

Potential improvements

Diokno pointed out that the government is currently looking into potential improvements in its medium-term fiscal framework but he insisted that the country’s revenue system is doing well.

We actually talked with the International Monetary Fund and we asked them to conduct a study on where we can improve on broadening the tax base meaning maybe find areas where we can recover from too much exemptions.

He added that the government is also pushing collection agencies to improve in order to create “better” revenues.

“So we are studying it, it’s not a perfect system so we’ll look for improvements but right now our revenue system is doing well,” Diokno said.