Tax expert: ‘No need to hike VAT’

CEBU, Philippines - Tax expert Raymond Abrea says there's definitely no need to hike value-added tax, this as the government expressed intent to tweak the VAT to offset the amounts expected to be forgone from the reduction of income tax rates.

Sought for comment, Abrea, however, stressed that there's really a need to review all exemptions and incentives provided by law as it has eroded further the taxpayer base.

"Aside from broadening the taxpayer base and classifying tax compliance for micro, small, medium and large taxpayers, we need to address first the tax leaks before increasing again VAT rate," Abrea, president and chief strategy officer of Abrea Consulting Group, told The FREEMAN.

Abrea explained that as the World Bank already suggested that other progressive countries with efficient tax system have lowered their income tax to focus on consumption tax or the VAT.

Options

"But this does not mean increasing the rates. This means making sure all imported goods are assessed from the country of origin so Customs will no longer be a threat and conduit to smuggling which fuels underground economy or the black market," the tax expert further explained, noting that tax evasion and smuggling are the system's main problems.

If ever VAT has to be increased, Abrea emphasized that it has to be on luxury goods and not the basic consumer goods as lowering of income tax will be useless for ordinary employees.

The country's VAT rate rose to 12 percent from 10 percent in February 2006 under former president Gloria Macapagal-Arroyo. VAT is imposed on the sale of goods and services.

'To affect the poor'

In an earlier interview, Philippine Retailers Association President lawyer Paul Santos said hiking the VAT rate tends to affect the poor more than the rich people.

"It affects everybody regardless of income [because] it's a cosumption tax," Santos said.

Santos instead urged the government to focus on collection efficiency and see options such as raising rates for estate and donors tax, for instance, and other ways to offset the losses when income tax rates are lowered down.

He added the government may even opt to decrease personal income tax and not corporate.

Trim

Earlier reports quoted Finance Secretary Carlos Dominguez III as saying that the government is looking to trim the list of exemptions from the 12 percent VAT. Although he said the VAT exemption on food, medicine and education will remain for senior citizens.

Filipino citizens who are at least 60 years old enjoy a 12 percent VAT exemption on top of a 20 percent discount on certain goods.

Senior citizens enjoy 20 percent discount on medical-related payments, local transport fares, and expenses in hotels, restaurants, leisure places, and in funeral and burial services.

Next month, the Department of Finance is set to submit a comprehensive tax reform package proposal to Congress, expected to be legislated and signed into law by Malacañang.

The Duterte administration plans to reduce corporate and personal income tax rates from 32 percent to 25 percent under the tax reform proposal.  (FREEMAN)