House leaders shoot down proposed 2% VAT increase

House leaders have thumbed down the proposal of the Department of Finance (DOF) to increase the Value-Added Tax (VAT) from 12 to 14 percent as a precondition to the approval of a bill seeking to reduce personal income tax rates.

Speaker Feliciano Belmonte Jr. said the DOF should not entertain such idea, warning that it “could harm” the ordinary Filipino workers.

“While VAT is really high in some other countries, the idea of adopting this scheme is not good because everybody is expected to be affected. I am against this proposal for the reason that it would harm the working class and their old-age savings,” he said.

Leyte Rep. Martin Romualdez, leader of the House Independent Bloc branded the DoF’s plan as “anti-poor.”

“The interests of workers are of paramount importance here,” Romualdez, a lawyer and president of the Philippine Constitution Association (Philconsa), said.

He reiterated his call to the Aquino government to certify as urgent the passage of the bill seeking to address the country’s “grossly unfair and inequitable” income tax system.

“Passing both bills (lowering personal income taxes and increasing VAT) is counter-productive to working class. It defeats the good intention of the bill to help our vulnerable sector by easing their burden, let us show malasakit (compassion) to workers,” Romualdez said.

Re-study President Aquino has rejected the DOF’s proposal to increase VAT to 14 percent in exchange for the reduced individual income and corporate tax rates.

Eastern Samar Rep. Ben Evardone, vice chairman of the House Committee on Appropriations called on the DOF to review its proposal.

“The country will face negative impact from this proposal because VAT affects directly. This should be restudied,” he said.

In a memorandum, the DoF urged the President to support its proposed “Comprehensive Tax Reform Package” which calls for an all-in income tax exemption of 1 million to all wage earners.

But, the DOF cited the need for a 14percent VAT increase and the expansion of the VAT base, removing all exemption except agriculture, health, banks, education, and removing zero-rating except on direct exports.

Belmonte, along with Marikina Rep. Miro Quimbo who chairs the House Committee on Ways and Means had assured that a bill seeking to lower income tax rate for individuals will pass in the 16th Congress.

The Philippines has the second highest individual income tax rate in the region at 32 percent next to Thailand and Vietnam’s 35 percent, and the highest value added tax (VAT) at 12 percent.