DOF opposes proposal to exempt agri inputs from VAT

The Department of Finance (DOF) is opposing a proposed blanket exemption to agricultural inputs from the value-added tax (VAT).

The DOF said it will not support Senate Bill 1669 or "An Act Amending the Agricultural and Fisheries Modernization Act (AFMA)" otherwise known as RA 8435 which seeks to exempt from VAT all agricultural inputs, equipment and machinery.

SB 1669 also seeks that all agricultural inputs as defined in the AFMA law and any future additions to such definition be VAT-exempt.

"There are already existing provisions of the present law that extend relief to the agricultural sector," said Finance Undersecretary Antonio M. Bernardo.

Currently, all food and non-food agricultural products in their raw form are VAT-exempt. Other agricultural inputs such as fertilizers, seeds, seedlings and fingerlings, and feeds are also exempted. Even services of agricultural contract growers and rice, corn and sugar millers are not subject to VAT.

"A blanket exemption for these products, particularly for machinery, equipment and spare parts opens a very wide avenue for abuse. These products do not have exclusive agricultural application," said Bernardo.

He added it will be administratively burdensome for tax administration to monitor such exemption particularly in the case of large agricultural producers who are not only engaged in agricultural production but are in manufacturing and processing as well.

Bernardo said VAT has been criticized because of its poor revenue performance in recent years.

"While we attribute this largely to administrative lapses, we also noted that many VAT exemptions have eroded the VAT base. VAT works more efficiently when the base is kept as broad as possible with minimum exemptions," he added.