THE DEPARTMENT of Finance (DOF) has stressed anew that the Duterte administration would keep the value-added tax (VAT) exemptions of senior citizens, but said its implementation would be rationalized.
“Our VAT tax rate is 12 percent and yet we collect as a percentage of GDP (gross domestic product) only 4.2 percent. Thailand whose VAT rate is 7 percent collects 4.2 percent. So in other words we have a lot of exemptions and we have lots of zero-rated transactions. We have to collect on that side,” Finance Secretary Carlos Dominguez 3rd told reporters during a recent chance interview.
However, Dominguez stressed that the government won’t remove the VAT exemptions on food, medicine and education as these commodities are necessities.
In the case of the VAT exemption for senior citizens, the Finance chief said the form of rationalization could involve determining who should be entitled to it.
“Let us analyze it. Where do you use that? You use that in expensive restaurants. I go by a meal that is P1,000. So I get a subsidy of P120 because I don’t pay the VAT. But the guy who needs it, who needs the P120 cannot get it because he doesn’t have the money to pay an expensive meal. Now is that fair?” he said.
Dominguez pointed out that the whole structure of the Duterte administration’s tax reform plan was meant to ensure that the government would have enough funds to make the necessary investments in infrastructure, education and health.
Reducing and rationalizing VAT exemptions is one of the offsetting measures of the administration to prevent overall government revenue loss from its plan to cut the personal and corporate income tax rates to 25 percent, as well as lower the estate tax to 6 percent from 20 percent.
Other revenue-generating measures include adjusting for inflation the tax on fuel and the rationalization of fiscal incentives.
Senator Juan Edgardo Angara said that aside from supporting lower estate tax rates, he was also seeking to increase tax-deductible expenses, such as medical expenses incurred by the deceased.
Records showed that only seven in every 100 deaths in the country settle estate taxes, while payment of the latter accounts for just one-sixth of one percent of total Bureau of Internal Revenue collections.
Angara is proposing that in computing the estate tax, the standard deduction be increased to P2 million from P1 million.
He also wants to exempt a family home from tax if it is valued at P2 million, double the current threshold of P1 million.