RVAT revenues seen to recover in 2010

MANILA, Philippines - The government expects revenues from the reformed value added tax (RVAT) to recover slightly in 2011 from an expected slump this year as imports are expected to fully recovery by then.

Estimates by the Department of Finance (DOF) showed that revenues from RVAT are expected to climb by at least P500 million to P79.4 billion in 2011 from the projected P78.9 billion this year.

“There will be more reliance on imported petroleum products next year,” Finance Undersecretary Gil Beltran said, noting that demand for petroleum products would increase along with the expected recovery of the economy next year.

When imports increase, the government’s RVAT collections are also expected to climb.

Of the P79.4-billion estimated revenues from RVAT next year, the Bureau of Internal Revenue (BIR) is expected to collect P10.3 billion while the Bureau of Customs (BOC) is tasked to collect P69.1 billion.

This year, the BIR is tasked to collect P12.1 billion in RVAT while the BOC has an estimated collection goal of P66.8 billion.    

RVAT collections have become problematic since last year as imports went down and because of the reduction in corporate income tax to 30 percent from 32 percent which the RVAT law mandated.

The Development Budget Coordination Committee (DBCC), the interagency group that sets the country’s macroeconomic assumptions, expects imports to have contracted by a bigger 25 percent from a previous assumption of a contraction of eight percent to 12 percent.

For this year, however, imports are projected to grow by 13 percent to 15 percent from a previous growth assumption of 10 percent to 14 percent.

The DBCC has yet to come out with its imports growth projection for 2011 but this is expected to continue the steady growth in 2010.

The RVAT law, passed in 2005, raised the sales tax to 12 percent from 10 percent and lifted the exemptions on oil and petroleum products despite stiff opposition from consumers and cause-oriented groups.

The new VAT law also increased the minimum corporate income tax to 35 percent from 32 percent, but this has been reduced to 30 percent last year.

In 2008, the government raised a whopping P121.14 billion from RVAT or P32.21 billion higher than the P88.93 billion collected in 2007.

As of end-September 2009, revenues from RVAT amounted to only P61.18 billion, still far from the 2009 goal of P75.98 billion, latest data from the Department of Finance showed.

This year, the government also expects RVAT revenues to hit bottom if pending legislative measures that threaten to erode revenues are approved by Congress. 

According to DOF estimates, the government expects to incur a P17-billion shortfall in its 2010 RVAT collections from the projected P78.9 billion for the year.

This as the government expects losses of roughly P49.5 billion a year from nine measures pending in Congress.

These measures include the bill seeking the creation of special economic zones in Bataan, Ilocos Sur, Cebu, Davao and Samal (revenue loss of P15 billion); the bill reducing the National Government’s share from royalties from indigenous energy sources to effect a reduction in electricity rates (revenue loss of P14.9 billion); the bill seeking to reimpose franchise tax on power distribution (revenue loss of P7.1 billion) and the bill seeking to exempt from income and other taxes the so-called Real Estate Investment Trust (P5.3 billion).

Other “negative revenue measures” include the proposal to exempt hybrid vehicles from excise tax and VAT which is expected to translate to losses of P2.7 billion, the abolition of premium tax on life insurance policies which has an estimated revenue loss of P1.8 billion and the abolition of documentary stamp tax (DST) on dollar remittances from overseas Filipinos which has a projected loss of P1 billion. 

The proposal to provide incentives to the Home Development Mutual Fund or PAG-IBIG Fund is expected to translate to losses of P900 million while the abolition of DST on life insurance policies is expected to translate to revenue losses of P800 million.

RVAT collections have been used for social services and various infrastructure projects, government officials have said.