The Marcos administration is working with the International Monetary Fund (IMF) for the conduct of a study aimed at addressing the low value-added tax (VAT) efficiency in the country, the Finance Department said on Tuesday.
“We actually talked with the IMF and we asked them to conduct a study on where we can improve on broadening the tax base,” Finance Secretary Benjamin Diokno said in a press briefing in Malacañang when asked about government measures to tackle low VAT efficiency.
“Meaning, maybe we find areas where we can recover iyong mga too much exemptions. For example: one exemption talaga is the cooperatives – iyon, madami talagang hindi nagbabayad ng VAT because of the cooperatives . So, the IMF study will tell us how do we recover kasi 0.4, that’s really poor … poor performance,” he said.
With VAT being the best tax in the world, with 90 percent of the countries around the world imposing such tax, Diokno said, “it is in our interest to improve on the efficiency of the VAT.”
Although the Philippines has the highest VAT rate compared to other countries, Diokno said its VAT collection is the most inefficient at only 40 percent as a result of many exemptions.
Prior to the passage of the reforms, the Philippine Tax Code contains many exemptions – some 56 lines of exemptions and 84 additional exemptions in special laws, he explained.
“So, from 2016 to 2020, the Philippines collected an average P723 billion from VAT which is only 40 percent of the expected VAT collections,” Diokno said.
“Tayo, ang kinukolekta lang natin is 40 percent and that’s because of a lot of exemptions. So, the various incentives and exemptions granted outside the Philippine Tax Code erode the revenue base and this requires the establishment of safeguards in tax administration to prevent abuse which further inflates the true cost of granting incentives.”
Citing a World Bank study, the finance secretary said the policy gap or the supposed tax to be collected and what is actually collected could reach as high as P539 billion.
He added that when they made the distinction between export and domestic market enterprises, the government favors giving incentives to export-oriented firms because they are competing with the rest of the world and should not be put at a disadvantage.
“Whereas if you are locally-based, then you are competing with other local domestic industries and therefore you should not be given a lot of incentives,” he pointed out.
“So, to sum up, the distinction between registered exporters and domestic market-oriented enterprises must remain to preserve the integrity of our tax framework. So, ito iyong arguments why we need to help those who are export-oriented and why we need to tax the domestic firms.”
The revenue impact is significant with an annual average of P34 billion or P409 billion in one incentive cycle or the incentives that are being given away, he said.
Because the administration wants to maintain fiscal discipline and carry out consolidation until 2028, there is a need to preserve the existing tax system.
“It’s not perfect but we continue to review it – if there are some areas we can improve on, we will improve on it,” Diokno said. (PND)
