Senators not keen on reducing VAT

MANILA, Philippines — A Department of Finance (DOF) proposal to slash the 12 percent value-added tax (VAT) to as low as eight percent has been ignored in the Senate.

Finance Secretary Carlos Dominguez III told an online forum with the Tuesday Club that no senator bothered to carry the proposal, even if it meant the reduction of a tax that will provide relief to consumers.

He said under the proposal, the VAT can be brought down to as low as eight percent, but all exemptions given to specific sectors – particularly senior citizens and persons with disabilities – will be lifted.

“One of the ideas we were thinking about was the reduction of VAT to 10 percent and, possibly, eight percent. However, [we] eliminate all the exemptions,” Dominguez said.

He argued that the removal of exemptions would benefit most consumers, especially the poor, due to the decrease in commodity prices.

“Nobody wanted to take it up in the Senate. We were considering proposing reducing the VAT to 10 percent and, probably, eight percent, but eliminate all the exemptions. Everybody pays,” the finance chief said.

Dominguez raised his concern that the government has failed to capitalize on the VAT to expand the share of taxes to the economy as measured by the gross domestic product (GDP).

In a previous engagement, he said the effective tax rate for VAT collection stood at five percent against the legal rate of 12 percent due to exemptions given out to various sectors.

Dominguez opposes the VAT exemption even for seniors because they provide benefits even to those who never needed it. He cited as an example a rich retiree who gets P120 in VAT back for every P1,000 purchase when a low-income worker shells out P120 more for the same amount.

Dominguez said the DOF will pass on a consolidation plan to the next administration with the hope of pursuing fiscal reforms started under President Duterte’s term. Also, the fiscal blueprint will outline what tax measures the next leadership can take to fund its pandemic measures.

Based on estimates, the government lost at least P1.72 trillion in revenues in 2020 and 2021, as the imposition of business restrictions during the pandemic slowed investment activities.

In spite of this, the Duterte administration recorded a revenue effort of 15.6 percent as a share of GDP from 2017 to 2021, as against the previous leadership’s 14.3 percent.