The Department of Finance (DOF) looks to cast a wider value-added tax (VAT) net and channel the collected revenues directly to benefit indigent elderly Filipinos who need financial aid the most.
This was learned from Finance Undersecretary Karl Kendrick T. Chua, chief government economist, who said the leakages resulting from VAT exemptions for the advanced in age could reach an estimated P10 billion this year alone, based on World Bank estimates.
Chua said the plan is to transform some of the VAT exemptions into a system that would provide social protection to the deserving, such as indigent seniors and other vulnerable sectors.
The proposed lifting of VAT exemptions senior citizens enjoy does not include raw food and other essentials, like education and health care.
“We are proposing to really target the benefits only to the poor and the vulnerable so that we avoid the leakages, which is very rampant in our estimate. The World Bank estimated [close to] P10 billion in leakage in the senior citizen [VAT] discounts,” Chua said during a recent technical working group meeting in the Senate on the DOF’s proposed tax-reform plan.
Using data from the 2012 Family Income and Expenditure Survey (FIES), the World Bank said the leakage from VAT exemptions granted to senior citizens total P4.9 billion up to P7.1 billion in 2012 alone. The numbers also include nonseniors who benefit from the seniors’ VAT exemption.
“The estimated nominal growth of consumption is around 35 percent between 2012 and 2016. Thus, the 2016 estimated leakage is around P6.6 billion to P9.6 billion,” said Chua, a former senior economist for the Philippines at the World Bank.
What the DOF is proposing is to transform the VAT mechanism into a system where the target [subsidies] “only go to those who really deserve to be protected,” Chua said.
A significant portion of the revenues to be collected under Package One of the proposed DOF tax-reform program will go to subsidies and other forms of social protection for vulnerable sectors.
“To mitigate the impact of the tax increases on the poor and low-income households, earmarking for highly targeted subsidies is proposed to fully protect the poorest 50 percent of households and partially protect the working class,” according to the DOF-supported tax bill submitted to Congress last month.
The wider VAT proponents said a quarter of the incremental revenues to be generated from the excise-tax increase on petroleum products will be used to fund highly targeted subsidies for vulnerable sectors. The remaining 75 percent will go to other social and infrastructure expenditures.
In earlier reports, DOF Spokesman Paola A. Alvarez stressed the 20-percent discount enjoyed by all senior citizens would remain and that some of the VAT exemptions would be replaced, instead, by better alternatives to shield poor and low-income seniors from the impact of the tax-reform plan.
According to Alvarez, the better alternatives are in the form of social protection programs that include expanded pensions and conditional cash transfers.
“A much better option that would effectively provide aid to our indigent seniors are targeted cash transfers, expanded pensions, free rice and other subsidies that the government has been giving them under the Pantawid ng Pamilyang Pilipino Program,” Alvarez said.
She said the VAT exemptions the DOF is planning to lift include those granted to seniors when dining in restaurants, because such discounts are enjoyed by affluent senior citizens who can well afford to do away with this privilege anyway.