Angara Thumbs Down VAT Hike

Senator Sonny Angara has rejected calls to raise the value-added tax (VAT) rate to compensate for the projected revenue loss from reducing income tax rates.

“I don’t agree with the move to increase VAT as it would only burden ordinary Filipino consumers. The VAT is a pass on tax–meaning businesses and corporations claim their input tax but they pass on the ultimate tax to the consumers.

“So it kind of defeats the purpose of having inclusive growth because by raising VAT, we’re passing on the burden to ordinary Filipinos who are paying the taxes,” said Angara, chairman of the ways and means committee.

Finance Secretary Carlos Dominguez III has also recently announced that he was inclined against the proposal to increase the VAT rate from 12 percent to 14 percent, pointing out that being more efficient in collecting VAT could already double VAT collections to offset the possible foregone revenue due to lower income tax rates.

The last increase in VAT rate from 10 percent to 12 percent took effect in 2006. This VAT hike resulted to a higher VAT collection from P156 billion in 2005 to P259 billion in 2006.

The Philippines’ 12-percent VAT is already the highest in the ASEAN region, which has an average VAT or sales tax at 8.56 percent.

A study by the National Tax Research Center (NTRC) showed that with the current VAT rate of 12 percent, a VAT effort of 3.75 percent indicates that only around 30 percent of the economic activities were captured by VAT.

The same study also estimated that the country’s VAT gap, which represents the difference between potential VAT revenues and actual collection, stood at P135 billion in 2009.

NTRC said the ballooning VAT gap may be attributed to weak tax administration, under-declaration of sales, non-issuance of receipts, and excessive claims of input VAT.

“The country also has a huge informal economy. We want to engage those people by formalizing them and getting them not necessarily to pay taxes but to register so the government can give them assistance,” said Angara, who has filed Senate Bill 309 or the Magna Carta of Workers in Informal Economy (MACWIE).

“Ang tingin kasi ng mga maliliit na negosyante, kapag nanatili silang underground, makakaiwas sila sa mga bureaucratic fees and costs. Dapat nating ipaunawa sa kanila na mayroong mga karampatang insentibo kapag sila ay nagparehistro,” he added.

The lawmaker also said that the ways and means committee can review the list of exemptions from VAT coverage and identify the transactions that should no longer be exempted from VAT.