The incoming Duterte administration reassured the public that its commitment to lowering income tax rates would not result in the imposition of a higher value-added tax (VAT), as it would only make the daily living of average income Filipinos more burdensome.
In a press briefing over the weekend, incoming Finance Secretary Carlos Dominguez 3rd, said that VAT in itself is a “regressive” kind of taxation, and increasing it further would only make the life of ordinary Filipinos more difficult.
“As it is now at 12 percent, I think VAT is a regressive tax measure. I think that it is more of a burden to the average income earners versus the higher income earners,” Dominguez said.
“They [average income-earners]are paying for their needs. They are not paying for their wants. So why would you screw these guys?” he added.
A regressive form of taxation is one in which low-income earners pay a higher share of their income as tax compared with higher income earners, which Domiguez said is the case with the VAT system.
Although the 1987 Philippine Constitution does not expressly prohibit regressive taxation, it calls on Congress to enact progressive tax laws, which impose higher tax rates for higher incomes.
The comment regarding VAT came after Dominguez was asked whether the new administration would adopt the proposed Comprehensive Tax Reform Program (CTRP) prepared by the outgoing administration, which calls for lower income tax rates but offsets the reduction by increasing the VAT rate from the current 12 percent to 14 percent.
“The reason why I think Duterte or this incoming administration was chosen by the electorate with a clear mandate is that the public feels neglected. The Aquino administration has become too pro-government by obsessing over revenue generating measures favorable to the government. Thus, it is now incumbent upon us to consider first the welfare of the taxpayers rather than the government,” he said.
“Many of those who voted for the incoming president feel that they have not benefited from the robust economic growth that the Aquino administration has been bragging about,” the incoming Finance chief added.
Dominguez also said that the Aquino administration’s proposed P1 million all-in tax exemption combined with lowering the top tax rate from 32 percent to 25 percent, was “our original concept.”
“That is our idea [lowering the income tax rate]. But then the Aquino administration’s proposal raises the VAT. Is that an exemption? Come on. Let us say you earn a million bucks. You spend P800,000 and you pay 14 percent of VAT, that is 2 percent higher … So who are you kidding?” Dominguez said.
Nonetheless, Dominguez said that the incoming economic team would review the proposed CTRP of the outgoing administration. He clarified, however, that reviewing the plan does not prevent them from coming up with their own version.
“We will read it [CTRP]. If it matches and if it is in accordance with what we want, of course, we will adopt it. But we will definitely not increase the VAT. I do not think the VAT can be lowered, but we will definitely not increase it,” he said.
Lastly, the incoming Finance chief noted that he agreed with the recent pronouncement of incoming Budget and Management Secretary Benjamin Diokno that the fiscal deficit ceiling could be increase to 3 percent from 2 percent of the gross domestic product (GDP), and praised preceding administrations for creating favorable economic conditions.
“We could not increase it were it not for the efforts of the Aquino and Arroyo administrations. Hence, we can afford to relax the fiscal policy because of them,” he said.