Non-negotiable: VAT exemption stays for seniors, PWD

MANILA, Philippines - The Department of Finance (DOF) said the exemption of senior citizens and persons with disabilities (PWD) from the payment of value added tax (VAT) on food, medicine and education is non-negotiable.

In an interview with reporters, Finance Secretary Carlos Dominguez said the ongoing review on the VAT exemptions granted to senior citizens and PWD is part of efforts to make the country’s tax system fair and more equitable.

The DOF is eyeing the lifting of VAT exemptions, adjusting for inflation of the tax on fuel, and rationalization of fiscal incentives to compensate for the planned reduction in personal and corporate income tax rates.

Dominguez said the country’s VAT collections account for only 4.2 percent of gross domestic product (GDP), the same as Thailand.

The Philippines, however, imposes a 12 percent VAT rate while Thailand charges only seven percent.

“So in other word we have a lot of exemptions and we have lots of zero-rated transactions. We have to collect on that side. However, we will not remove the VAT exemptions on food, medicine and education. Those are very necessary,” Dominguez said.

He explained the government is looking at bringing down both personal and corporate tax rates to 25 percent over a three-year period. It is also looking at simplifying the tax brackets for individual taxpayers.

Individuals are charged between five and 32 percent depending on their annual income. Those earning below P10,000 are charged five percent; those earning over P10,000 but not over P30,000 are levied P500 plus 10 percent of excess over P10,000; and those earning between P30,000 and P70,000 are taxed P2,500 plus 15 percent of excess over P30,000.

Furthermore, employees with annual income of over P70,000 but less than P140,000 are levied P8,500 plus 20 percent of excess of P70,000; those with P140,000 but less than P250,000 are taxed P22,500 plus 25 percent of excess over P140,000; and those earning between P250,000 and P500,000 are charged P50,000 plus 30 percent of the excess over P250,000.

The highest rate of P125,000 plus 32 percent is imposed on those earning more than P500,000.

On the other hand, the Bureau of Internal Revenue (BIR) has been charging domestic corporations with a tax rate of 30 percent since January 2009.

“So a lot of people will benefit from that. However, it will be very irresponsible to only do the reduction so we will rationalize now what we are exempting,” Dominguez said.