The prospective Department of Budget and Management (DBM) chief has backed proposals to raise the 12-percent value-added tax (VAT) to increase government funds for infrastructure projects.
University of the Philippines School of Economics professor Benjamin E. Diokno said there is still room for increasing the VAT to beef up government revenues.
Although he clarified that the Executive branch’s proposal for tax reform would be up to the incoming finance secretary, Diokno would be part of the economic-policy team of Mr. Duterte, who offered him an appointment as budget secretary.
“My personal position is that it’s better to tax consumption than income, for as long as food in its original state is exempted from VAT. It is in this sense that our VAT system is slightly progressive; the burden is heavier on the rich. But this is the call of the incoming finance secretary,” Diokno told the BusinessMirror.
In a presentation before the Foreign Correspondents Association of the Philippines in 2013, the incoming DBM chief had pitched for hiking the VAT to 15 percent.
Diokno is known to be averse to underspending, and had earlier alleged the Aquino administration had underspent at least P1 trillion in the past six years.
Underspending in 2014 was the reason behind the low GDP growth of 6.1 percent in 2014, below the reduced target range of 6.5 percent to 7.5 percent.
The proposed increase in the VAT is being floated by both the economic team formed by incoming Finance Secretary Carlos G. Dominguez III and by Finance Secretary Cesar V. Purisima as part of the tax-reform package that will supposedly ease the tax burden on those earning up to P1 million in annual gross income.
Under Purisima’s tax-reform study to be turned over to the new administration, the main component of the tax reform, which is the exemption from income tax of the first P1-million annual salaries of every individual wage earners, will cost the government some P151 billion to P215 billion in foregone revenues.
Purisima’s proposal will also make the income-tax rate on self-employed individuals and professionals to a fixed rate of 25 percent on their taxable income, retaining the allowable itemized deductions or the optional standard deduction on gross income, but removing all other personal and additional deductions.
This would prevent professionals, such as doctors and lawyers, to skirt the highest tax brackets through the deductions on their gross income, which results in a lower taxable income than those who are working on a monthly salary basis.
The projected decrease in government revenues from the adjustments to be made on the income tax to be imposed on wage earners will be offset from the increase in the VAT rate from 12 percent to 14 percent, and the removal of all exemptions from VAT, except for goods and services relating to agriculture, health, banks and education.
However, there are opposition to the proposal to increase the VAT rate, which now seems to be the most popular alternative among policy-makers to make up for the shortfall in revenues expected from the tax reform, although Mr. Duterte had earlier categorically dismissed the proposals to raise the VAT.
According to the Tax Management Association of the Philippines (TMAP), the proposed increase in the VAT rate is uncalled for at this time, and will result in a minimal increase in VAT collection sans an improvement in the efficiency of the Bureau of Internal Revenue (BIR).
“Not now. Increasing the VAT rate at this time is uncalled for, since the VAT effort is still very low,” TMAP President Benedict Tugonon said, when asked by the BusinessMirror whether TMAP supports the proposed increase of VAT to make up for the expected revenue shortfall from the reduced income-tax rates.
“The BIR has to improve the VAT effort and improve VAT collection efficiency before increasing the VAT rate, otherwise, the rate increase will not result to substantial increase in revenue collection,” Tugonon added.
However, he said the increase in the VAT and the lifting of some of the VAT-exemptions should definitely be among the government’s options in increasing revenues.
2 comments
Tax Reform NoW!!! Im paying to much tax to finance lousy government service!
Tax people who are earning more than 1 million in Corporate Dividends, even if it is a privately family owned organization. Increasing VAT will only impact the low and middle class of society.