VAT exemption leakage costs gov’t P105B a year, Finance dep’t says
By Lucia Edna P. de Guzman | Posted on October 28, 2016
LEAKAGE from value-added tax (VAT) exemptions and corporate tax incentives cost the government P105 billion in foregone revenue annually, according to the Department of Finance (DoF).
The leakage, according to Finance Undersecretary for Revenue Operations Antonette C. Tionko, points to “severe inequality” in terms of benefits derived from the VAT system.
“For example, manufacturing companies in the special zones pay just one-third of what companies outside the zones pay,” Ms. Tionko said. This is equivalent to P8.00 of every P1,000 in revenue for firms in special manufacturing zones compared to P23.00 per P1,000 paid by firms outside.
The foregone revenue from these incentives, which are not time-bound, could instead have been used to fund the construction of roads.
“Public investment would be needed to stimulate private enterprise, particularly in rural areas to raise overall productivity and wages,” Ms. Tionko said.
Rationalization of fiscal incentives is a part of the DoF’s second tax reform package, which seeks to address corporate income tax rates.
On the other hand, the broadening of the VAT base through the removal of exemptions — those enjoyed by senior citizens included — is a part of the personal income tax reform package submitted by the department to the House of Representatives last month.
To address the needs of marginalized sectors, Ms. Tionko said: “We’re thinking that it would be more prudent to increase the coverage of social protection, perhaps through targeted cash transfers or higher pensions.”
Speaking to reporters on the sidelinies of the International Tax Forum, Ms. Tionko said that the department is coordinating with other executive agencies to implement these subsidies.
Recognizing the additional cost to commuters by the proposed fuel excise tax, Ms. Tionko said that the department is considering the reimplementation of the Pantawid Pasada program.
“We’re working on that with the Department of Social Welfare and Development, Department of Energy and Department of Transportation,” Ms. Tionko said. “We’re discussing the most efficient way that people can enjoy these subsidies.”
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