The Market Monitor Minding the Nation's Business
By Luis Leoncio
President Duterte’s economic managers have abandoned the proposed increase in the value-added tax as a means to make up for revenues to be lost with the plan to lower income and corporate taxes.
Instead, Finance Secretary Carlos Dominguez pressed the Bureau of Internal Revenue (BIR) to improve tax collections to raise more revenues.
In a speech at the recent 112th anniversary rites of the BIR, Dominguez highlighted the importance of the agency in bringing enormous benefits to all Filipinos since it collects about 70 percent of estate taxes.
“Any slack in the agency will reflect massively on the government’s bottom line. Conversely, any improvement in performance, independent of any extraneous factors, will bring massive benefits to our nation,” he said.
”We should be able to compensate for this (tax) rate reductions by rapidly broadening tax base and improving VAT collection efficiency,” he said.
Earlier, Budget Secretary Benjamin Diokno said the plan to lower individual and corporate income taxes would have to be accompanied by an increase in the VAT from the current 12 percent to 14 or 15 percent to compensate for the revenue losses.
Citing what President Duterte said in his first State-of-the-Nation Address (Sona) last July 25, Dominguez said the target of the administration is to lower the poverty rate from the current 26 percent to 17 percent within six years.
The reduction of poverty by about 1.5 percent a year until 2022 needs to be funded by higher investments in infrastructure, which will result in better job creation, he said.
Dominguez said the BIR has to encourage taxpayers to do their duty and make the country more investment friendly.
“Obviously, you have to make sure that your tax collections are vigorous, and that they are fair, and that they are done with no hint of any corruption,” he said.
Addressing the peace situation does not need the peace process alone but also through provisions of job opportunities for those who will be re-integrated to the society, he said.
“Again, the BIR can contribute to this by making sure that there are enough revenues for us to create the infrastructure necessary in the areas they occupy and to make sure that businesses are treated fairly and look upon us as a help to their business rather than a hindrance,” he added.
The decision to junk the planned VAT increase was reached after it proved to be very unpopular.
Sen. Juan Edgardo “Sonny” Angara, chairman of the Senate Committee on Ways and Means, said the proposal would only burden ordinary Filipino consumers.
“The VAT is a pass- on tax, meaning businesses and corporations claim their input tax but they pass on the ultimate tax to the consumers,” Angara said. “So it kind of defeats the purpose of having inclusive growth because by raising VAT, we’re passing on the burden to ordinary Filipinos who are paying the taxes.”
The last time the VAT rate was increased from 10 percent to 12 percent was in 2006, resulting in higher VAT collection of from P156 billion in 2005 to P259 billion in 2006.
The country’s 12-percent VAT is already the highest in the Association of Southeast Asian Nation (Asean), which has an average VAT or sales tax of 8.56 percent.
A study by the National Tax Research Center (NTRC) showed that with the current VAT rate of 12 percent, a VAT effort of 3.75 percent indicates that only around 30 percent of the economic activities were captured by VAT.
The same study also estimated that the country’s VAT gap, which represents the difference between potential VAT revenues and actual collection, stood at P135 billion in 2009.
NTRC said the ballooning VAT gap may be attributed to weak tax administration, under-declaration of sales, non-issuance of receipts, and excessive claims of input VAT.
Angara said the Senate could review the list of exemptions from VAT coverage and identify the transactions that should no longer be exempted from VAT.