REDUCING the value-added tax (VAT) rate from the current 12 percent without removing its list of exemptions will have a negative effect on the country’s fiscal position, the Department of Finance (DOF) said.
Finance Secretary Carlos G. Dominguez III told financial reporters that reducing the VAT rate while keeping all its exemptions will impact the expenditure program and drastically cut revenues.
“It will be bad of course; I don’t know exactly the effect in the numbers, but it’s going to be negative [for our fiscal position],” Dominguez said.
Some lawmakers have called for reducing the country’s VAT rate since last year. In November 2017 Sen. Panfilo M. Lacson Sr. proposed the amendment to reduce the VAT rate from 12 percent to 10 percent, saying the economy is improving, with gross domestic product growth at 6.9 percent.
Senate Bill 1671 filed by Sen. Risa Hontiveros in early-2018 also proposes to slash the VAT rate to 10 percent from the current 12 percent, to help the poor cope with the impact of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law.
The first package of the government’s Comprehensive Tax Reform Program (CTRP) or the TRAIN was signed into law by the President in December last year, paving the way for its implementation in January 2018. The TRAIN lowered personal-income tax from 32 percent to 25 percent while implementing offsetting measures to cover the revenue loss, including the increase in excise tax for fuel, tobacco and automobiles, among others.
Dominguez reiterated before the weekend that the DOF is amenable to reducing the VAT rate so long as all VAT exemptions are removed in the process.
“Actually, that is the proposal of Ping Lacson. You know, we support that [reducing the VAT] provided that all the exemptions are removed. That is something that we are willing to support, but you know, if you are not going to remove the exemptions…we are going to lose money and our projected expenditures will, of course, be affected,” he added.
He pointed out that a VAT reduction will require amendments to the VAT Reform Act, or Republic Act 9337, and all the other laws providing VAT exemptions. Amendments to RA 8424, or the National Internal Revenue Code of 1997, will also have to be done, he added.
Not just a TRAIN amendment
“That’s not an amendment to the TRAIN, that’s an amendment to the original law plus to all the laws that are giving the exemptions. I’m not sure if it’s doable this year or not,” Dominguez pointed out.
A form of sales tax, the VAT is a tax on the sale or exchange of goods and services in the Philippines and on the importation of goods into the country.
The expenditure program set by the government for this year is at P3.364 trillion, higher by 15.6 percent compared to the 2017 target of P2.909 trillion. The government expects to spend around P1.1 trillion a year until 2022 for infrastructure projects, including that of the Duterte administration’s “Build, Build, Build” program, touted as meant to usher in the “golden age of infrastructure” in the country.
Last week the government’s top budget manager said that a broader tax base should be in place before tweaking the VAT to 10 percent from its current 12 percent.
Budget Secretary Benjamin E. Diokno of the Department of Budget and Management explained the government believes the VAT system remains a more effective system than collecting personal-income tax.