Tax reforms to scrap VAT exemptions, hike fuel prices

MANILA, Philippines – If the Duterte administration could have its way, tax exemptions including those for seniors would be scrapped, fuel prices would go up due to higher excise taxes, while soft drinks and other sweetened beverages would also cost more.

Defending the proposed tax reform program yesterday, Finance Secretary Carlos Dominguez III pointed out that the government loses an estimated P5 billion in revenue just from cheating on senior citizens’ value added tax (VAT) exemptions every year.

Meanwhile, a maiden tax on sweetened beverages is likely to face an uphill battle in Congress as a “very strong” lobby against it has started, putting at risk additional revenues under the tax reform program.

According to Dominguez, the government collects P560 billion from the VAT, which is just a third of the potential P1.5 trillion in annual revenues if there are no exemptions.

During his confirmation hearing before the Commission on Appointments, Dominguez said the government would instead lower the qualifying age for those receiving subsidies from the government from the current 77 to 60 so the senior citizens would not feel disadvantaged.

He said this program would require an increase in the government’s budget for senior citizen’s subsidies from P8 billion to P17 billion.

Dominguez noted that due to exemptions, the VAT collection by the government represented only 4.3 percent of gross domestic product (GDP) .

Using Thailand as a basis of comparison, Dominguez said the prevailing VAT rate there was seven percent and the revenues collected by its government was equivalent to 4.3 percent of GDP.

“It seems they only lose 2.7 percentage points while we lose almost 7.7 percentage points. We have too many VAT exemptions. We have to eliminate quite a lot of VAT exemptions,” Dominguez said.

To further emphasize the extent in which the VAT exemptions were granted, Dominguez said purchases made by the Boy Scouts and Girl Scouts of the Philippines were also exempted.

Apart from removing the VAT exemptions, the Department of Finance (DOF) is also looking to increase the excise tax on diesel fuel.

In his previous briefing to the senators on the tax reform package, Dominguez noted that the affluent comprise a significant portion of diesel fuel consumers with their sport utility vehicles and so it would be sensible to increase the taxes on this particular product.

Sen. Panfilo Lacson, however, aired his concern about the impact this would have on the masses taking diesel-fed public transportation everyday.

In response, Dominguez said the government was looking at reviving the discounts granted to public utility vehicles by previous administrations.

On land valuation or the real estate tax collection, Dominguez lamented that the existing laws were not being followed and as such the valuation of real properties remained stagnant for decades.

He said the assessment of the value of real properties should be done every three years.

Once the valuation of land is increased, Dominguez said that an estimated P30 billion to P40 billion in additional revenues for the local government units would be generated. All real estate tax collections go the LGUs.

Dominguez said that the DOF was looking at having the national government set the valuation and to let the LGUs set the tax rate, the idea of which was to take local politics out of the process.

In defending the proposed tax reform package, Dominguez said the effort was meant to allow the government to spend more on infrastructure, particularly in areas needing them most.

“As far as soft drinks are concerned, there is a very strong lobby (against it),” Donald Dee, honorary chairman of the Philippine Chamber of Commerce and Industry (PCCI), said.