Bringing down the rate of the Value-Added Tax (VAT) while removing VAT exemptions in several sectors will go a long way in raising much-needed revenues for the government while lessening the burden on ordinary Filipinos.
Sen. Panfilo “Ping” M. Lacson said this formula, which he proposed as early as 2018, could have raised at least P117 billion a year in additional tax revenues even with a VAT rate of 10 percent, lower than the current 12 percent.
“The Department of Finance should have adopted my proposal when Congress was deliberating on Train 1. We could have earned at least P117 billion in additional tax revenues in 2018 alone, even with a reduced VAT rate from 12% to 10%, by removing 78 lines of exemption from some sectors such as the power sector, cooperatives, housing, and economic zones,” Lacson said, following reports the DOF will ask the next administration to remove VAT exemptions to generate at least P142.5 billion every year, with the amount potentially used for debt payments.
“If we managed to broaden the tax base four years ago, imagine how much more revenue we could be generating now,” he added.
Lacson noted that there were at least 143 lines of exemption in the Philippines, which some companies have availed of since the 1990s. This sheer number of exemptions negated the potential gains of having a higher VAT rate, he lamented.
“Lifting the exemptions from only 78 non-essential lines even with a lower VAT rate of 10 percent could generate an incremental revenue of P117.099 billion from VAT alone,” he said, adding lifting those exemptions would mean better tax efficiency due to simplified tax administration and minimum chance of tax evasion.
Exemptions to VAT can be limited to necessities such as raw food, agriculture, health and education, to make the VAT system “simpler, fairer and more efficient,” he added.
Meanwhile, Lacson said the VAT should be lowered from 12% to 10% as he noted the finances of the Philippines’ neighbors are doing better even with lower VAT rates – but with fewer exemptions.
“Our neighbors like Malaysia has a VAT rate of only six percent but VAT exemptions are given only to 14 entities. Thailand has a seven-percent VAT rate but gave exemptions to 25 firms; here in the Philippines, we have around 143 companies enjoying VAT exemptions,” he said.