The Department of Finance (DOF) said the remittances sent by overseas Filipino workers (OFWs) is not covered by the Comprehensive Tax Reform Program (CTRP) and, therefore, will not be taxed.
Finance Undersecretary Karl Kendrick T. Chua, in congressional hearings, issued a clarification in response to erroneous reports that OFW remittances would be taxed under the first package of the CTRP contained in House Bill (HB) 5636.
Chua said the Philippine government has jurisdiction only over domestic remittances, which are not taxed, and that the value-added tax (VAT) imposed is not on the money sent, but on the transfer fees charged by remittance companies.
“We have to distinguish between the foreign and domestic remittances. Those coming from abroad are not within our tax regime, so that is not [covered under the CTRP],” Chua added.
According to the DOF, transfer fees on domestic remittances have long been subject to VAT but these have not been fully collected by the Bureau of Internal Revenue (BIR).
“Let me be clear, it’s not a VAT on the remittance. It is VAT on the money transfer, like all other services that have been VAT-able from before,” he reiterated.
To plug the loophole, legal and tax experts have agreed that because transfer fees are not explicitly exempted from VAT under the National Internal Revenue Code, then these should be subject to consumption tax, according to Chua.
The BIR has advised the that DOF there is no need to amend the Tax Code to do this, and that a revenue regulation only needs to be issued to remind companies that transfer fees on domestic remittances are subject to VAT.
“The [money] transfers are being done in any type of businesses like pawnshops, which used to be only pawning. Now, they are also into money transfers. This is a gray area or loophole that we are correcting. We were advised by the BIR to clarify it through regulation,” he said.
As for money sent by OFWs to the Philippines, the tax laws applicable to them would depend on the country of origin.
The House of Representatives approved Tax Reform Acceleration and Inclusion Act (TRAIN), or HB 5636, by a 246-9 vote with one abstention on May 31 before Congress’s sine die adjournment.
HB 5636 had consolidated the original proposal under HB 4774, with 54 other tax-related measures, seeking to make the country’s tax system simpler, fairer and more efficient by slashing personal income-tax rates and, to fill up the consequent revenue loss, by adjusting excise taxes on certain products and broadening the VAT base.
Finance officials hope the Senate would act swiftly on the bill when Congress opens in July and retain the original TRAIN features as outlined in HB 4774.