DOF: Tax reform program will not tax remittances from abroad

MANILA, Philippines — The Department of Finance clarified on Wednesday that the money being sent home by Filipinos abroad will not be taxed under the tax reform package being pushed by the government but said the transfer fee for local remittances might be imposed with a levy.

DOF Undersecretary Karl Kendrick Chua said that the Philippines cannot tax money sent by Filipinos from other countries since the government has no legal jurisdiction over these remittances.

He said that he was correcting erroneous reports that said that overseas remittances would be taxed under the first package of the government’s tax reform program contained in House Bill 5636.

Chua told both Senate and House ways and means panels that the Comprehensive Tax Reform Program (CTRP) would have jurisdiction only over local remittances. He said that money sent domestically is not taxed as the Value Added Tax (VAT) is imposed only on the transfer fees charged by remittance companies.

“We have to distinguish between the foreign and the domestic remittances. Those coming from abroad are not within our tax regime, so that is not [covered],” Chua told the Senate panel conducting hearings on the tax measure.

The Finance official said that under existing tax laws, the transfer charge for domestic remittances is subject to VAT. The Bureau of Internal Revenue however has not yet fully collected the tax, he said.

“Let me be clear, it’s not a VAT on remittance, it is VAT on the money transfer like all other services which has been VAT-able from before,” he said.

BIR advised the Finance department that there is no need to amend the country’s tax code to tax transfer fees, he said.

A revenue regulation just needs to be issued to remind companies that domestic remittance transfer fees are subject to VAT, according to Chua.

“The transfers are being done in any kinds of businesses like pawnshops, which used to be only pawning. Now, they are also into money transferring. This is the gray area or loophole that we are correcting. But we were advised by the BIR …. to just clarify it through a regulation,” Chua told the House panel.

Chua said that the tax on money sent by OFWs would depend on the country of origin’s local laws.

The government is pushing for a reform of the country’s tax system as a means for the government to finance many of the infrastructure projects over the next few years.