Rody government eyes VAT increase

MANILA, Philippines - The incoming Duterte administration is eyeing an increase in the 12-percent value-added tax (VAT), budget secretary-designate Benjamin Diokno said yesterday.

He said he is in favor of increasing the VAT “up to a maximum of 15 percent.”

He told ABS-CBN News Channel that he has been meeting with incoming finance secretary Carlos Dominguez on a measure that would generate revenues to support the annual budget.

 “That’s under discussion,” he said when asked about an increase in VAT. “The timing can be worked out, maybe after two years. We have to reduce income tax first.” 

In other Asian countries, the VAT is 17 percent, he said.

Diokno added VAT “is a good tax, which we started during the time of the late president Cory (Corazon) Aquino.”

Bureau of Internal Revenue (BIR) Commissioner Kim Henares has suggested that aside from adjusting VAT, the next administration would review exemptions from its coverage.

“There are numerous exemptions. The alphabet did not suffice. They (lawmakers) had to use AA, double B, double C and so on for these exemptions,” she said.

Some concerned groups have called for reviewing the input-output VAT system, which they claimed gives rise to cheating and corruption.

The value added tax is imposed on almost all consumer products with only a few exceptions, including food in its original state. It replaced the old sales tax.

Diokno belongs to a group of economists that has been advocating a combination of reducing income tax and increasing VAT.

The group reasoned out that under this combination, the government might not lose revenues, since the loss from one measure could be recovered from the other.

But the good thing about it is that reducing income tax would give people more disposable income, which they could opt to save, rather than spend, to avoid a higher VAT, the group said.