DOF proposes 14% VAT rate, higher income tax exemption

President Aquino’s economic managers are proposing to the next administration to push for the passage of comprehensive tax reform package (CTRP) that will raise the present value-added tax (VAT) rate, but will be compensated by higher income tax exemption for wage earners.

Under the Department of Finance’s (DOF) CTRP, the Aquino administration wants presumptive President Rodrigo R. Duterte to consider increasing VAT from 12 percent to 14 percent, and expand its coverage to include senior citizens and persons with disability.

The DOF is also suggesting that other laws providing VAT exemptions — cooperatives, raw materials for biofuels, domestic shipping development, transport of passenger by intentional carriers, and electric transmission — be repealed.

The Boy Scouts of the Philippines and Philippine Amusement and Gaming Corporation’s exemptions from VAT are also eyed to be removed under the CTRP.

Aside from VAT, DOF has also proposed for higher excise tax on gasoline, diesel, and other oil products.

Petroleum products are currently taxed at varying rates ranging from zero exempt to 14.5 per liter. But under the CTRP, rates will be raised to 110 per liter on regulator gasoline and 16 per liter on diesel and other products.

Excise tax rates on oil will also increase by 4 percent annually after the law’s first year of implementation.

However, the DOF is proposing to provide state subsidy when global crude oil price reaches more than $90 per barrel.

The rationalization of government’s fiscal incentives is also part of DOF’s CTRP proposal to the next administration.

Under the CTRP, the government will provide incentive options limited only to export oriented enterprises and strategic enterprises.

“Provide options of four-year income tax holiday, 5 percent tax on gross income tax earned and 15 percent on net taxable income (NTI) to export oriented enterprises, and 15 percent tax on NTI to strategic enterprises,” DOF said.

Sunset provision on all fiscal incentives has also been proposed and the DOF also wants to secure a seat in all the boards of investment promotion agencies.

To balance the tax burden on consumers, the DOF included in its CRTP proposal the reduction in income tax rates to 25 percent from 32 percent and imposition of a 11-million all-in income tax exemption ceiling for wage earners.

“Reduce income tax brackets from seven to four for wage earners, and lower top tax rate from 32 percent to 25 percent in six years,” DOF said.

Likewise, the DOF wants corporate income tax to be reduced from 30 percent to 25 percent in five years.

If the 11-million all-in tax exemption is passed into law, DOF said it will benefit around 11 million wage earners from paying the annual income tax.

Based on DOF’s estimates, CTRP would yield 1141 billion in fresh revenues once passed into law.

Meanwhile, the DOF, likewise, proposed for some tax administration reforms, like making tax evasion a predicate crime to money laundering, repeal of bank secrecy law for tax purposes.

The DOF also wants the Bureaus of Internal Revenue and Customs to be removed from salary standardization law and civil service protection as well as allow the two main tax agencies to retain 1 percent of their revenues as their budget for modernization and to fund personnel enhancement measures.