The economic managers are thinking of lifting the exempt status of the food, medicine and educational services consumed by senior citizens at the moment from the value-added tax (VAT) to compensate for anticipated revenue losses resulting from the proposed reduction in income tax.
This was learned from Budget Secretary Benjamin E. Diokno, who bared the government plan in a television broadcast on Wednesday, saying the lifting of the VAT on items consumed by millions of senior citizens requires an offsetting measure.
Some 10 million senior citizens enjoy VAT-free consumption on food and medicine purchases based on 5-year-old statistical data.
The VAT-free transactions of the country’s senior citizens are on top of another privilege granting the sector a 20-percent discount on other purchases, as well.
But while the medicine, food and education services availed of by Filipinos 60 years or older may no longer be VAT-free, the decision to proceed or abandon the plan has yet to be made.
“That is still being discussed,” Diokno quickly said.
According to him, the economic managers are looking at measures that do not distinguish between rich and poor seniors, so that both equally benefit from the projects of the government and not just the more affluent senior citizens. Diokno further explained that Finance Secretary Carlos G. Dominguez III would want to give direct subsidy to the poorest of the poor senior citizens.
He said the VAT-free consumption on food, medicine and educational services enjoyed by senior citizens, plus the 20-percent discount privilege, effectively grants the sector a discount on all their purchases 30 percent deep.
This was why the tens of billions of pesos spent each year by the government under the Conditional Cash-Transfer (CCT) Program acts as equalizer on the less financially endowed senior citizens as the 20-percent discount mechanism does not distinguish a poor senior citizen from a rich one, Diokno explained.
“They are all entitled to these privileges,” he said.
Apart from lifting certain VAT-exempt areas, the economic managers also look to impose excise tax on diesel to offset the effects of the reduction on income tax.
“So we will make up [for the reductions] by increasing the tax on petroleum. As you know, the price of petroleum has gone down from $135 per barrel to $40 or $50 per barrel. Also, those who use diesel-powered cars will be spending more, because originally there was no tax on diesel,” Diokno said.
Dominguez, in a separate event earlier, also said the comprehensive tax-reform package that will be submitted to Congress will be thoroughly reviewed and studied. He vowed the marginalized sectors will benefit from the reforms.
“As a general rule, the rich will have to pay more in tax, while the vulnerable sectors of society will be protected through highly targeted subsidies, such as the CCT Program. We will ensure that the ordinary workers and the bottom 50 percent of households will be fully protected through social-protection programs,” he said.
Diokno is hopeful the comprehensive tax-reform package that will be submitted to Congress become law by January next year.
1 comment
I feel that there should be a status quo for at least three years on vat exemptions for senior citizens and pwd before gov’t economic managers make the necessary adjustment on broad base tax reform.Those senior citizens are in their twilight years and our gov’t must accord them the best possible benefits.
On personal income tax,I think a five level tax rate bracket is sufficient and simplify tax payment processes. Level five income tax rate should be around 15 to 18 percent for gross annual income of 6 million pesos and over.I leave the level one to four income tax rates to our economic managers for their discretion.