House rejects government push for higher VAT

MANILA, Philippines - While Malacañang won’t cut income taxes, the House of Representatives is also unlikely to approve the Aquino administration’s proposal to increase the value-added tax (VAT) from 12 to 14 percent.

Senior lawmakers slammed Malacañang yesterday for opposing the legislation to reform the country’s income tax system, asking the Palace to double-check its revenue projections and “show compassion” to fixed-income earners.

Marikina Rep. Miro Quimbo, House ways and means committee chairman, and his Senate counterpart Sen. Juan Edgardo Angara are pushing for legislation that aims to lower income and corporate taxes.

But the Department of Finance argued that reducing personal and corporate income taxes would result in revenue losses amounting to P60 billion annually. The DOF proposed that the VAT be raised from 12 to 14 percent to compensate for the losses. Malacañang supports the reform measures.

Quimbo said yesterday he understands the need for the government to recoup losses from bills seeking lower individual and corporate income tax rates if Congress approves these.

That is why his committee is considering several measures that would enable the DOF and revenue-generating agencies to recover projected losses. “But these measures do not include the DOF’s proposal for a higher VAT,” he said.

Among the bills that Quimbo’s committee is considering and is inclined to endorse are those that would modernize the tax collection system of the Bureau of Customs, scrap certain tax incentives granted to private companies, and impose a tax on soft drinks.

Quimbo noted that a large number, if not a majority, of House members are against a higher VAT.

For instance, Isabela Rep. Rodolfo Albano lll and Pasig City Rep. Roman Romulo yesterday joined their colleagues in opposing the DOF’s proposal for a VAT increase.

“The rich would not mind a two-percentage-point increase in VAT. It is the middle class, employees and the poor who will suffer,” Albano said.

“Increasing VAT to 14 percent will be an added burden to the working class, especially to the poor, which comprises the bigger chunk of society since it will mean corresponding increases in the cost of goods and services,” Romulo added.

In the country’s tax system, Romulo noted, the producers and service providers do not absorb the VAT. They are allowed to pass it on to customers. “That is why there is a VAT portion in your monthly electricity bill or mobile phone bill.”

Romulo also pointed out that the DOF, in wanting to have a tradeoff for lower income tax, failed to consider that employees would most likely use the extra take-home income they would get from a reduced income tax for consumer products that are subject to VAT. This means that the government, if it agreed to lower income tax rates, would be able to recover projected losses in terms of higher VAT revenues.

Albano also noted that any shortfall in revenues could be offset by efficient tax collection.

“I have trust in the Bureau of Internal Revenue (BIR) and Commissioner Kim Henares. They have been improving their collections every year. It is the Bureau of Customs that is wanting in performance, but I know that Commissioner Alberto Lina is doing his best to improve it,” he added.

Quimbo pointed out that “there is clearly something wrong if despite having the highest tax rates in Asean region, the Philippines has one of the lowest tax collection efficiency.”

“I think the DOF and BIR should really look at the numbers and not just see this (income tax reform) as plus and minus thing,” Valenzuela City Rep. Sherwin Gatchalian said. “Increasing the VAT will hit even those exempt from income taxes, that makes it a cruel proposal.”

Leyte Rep. Ferdinand Martin Romualdez, leader of the independent bloc, hit what he said was the “kneejerk reaction” of Malacañang.

“Magpakita naman sila ng malasakit (they should show compassion). It is Malacañang that should see the bigger picture,” he said.

He pointed out the administration has been underspending since 2010 that led to the slowdown in the country’s growth, so it is “weird” that is was concerned about reduced collections.

“Where are they putting taxpayers’ money if they’re not spending it for growth?” Romualdez asked.