Department of Finance clarifies VAT does not apply
To clarify erroneous reports that tend to mislead the public, the Department of Finance (DoF) on Wednesday said remittances by overseas Filipino workers (OFWs) are not covered by the value-added tax (VAT) under the proposed tax reform plan.
In a statement, Finance Undersecretary Karl Kendrick Chua said the government has jurisdiction only over domestic remittances, and not remittances from Filipinos abroad.
Also, Chua clarified that VAT does not cover the amount of domestic money transfers but only the transfer fees of remittance companies.
“We have to distinguish between foreign and domestic remittances. Those coming from abroad are not within our tax regime, so that is not [covered](under the Comprehensive Tax Reform Program,” he said.
Under existing tax laws, transfer fees for domestic remittances have long been covered by the VAT but not fully collected by the Bureau of Internal Revenue (BIR), Chua noted.
“Let me be clear, it’s not a VAT on remittance, it is VAT on the money transfer like all other services which has been VAT-able from before,” he said.
To plug the loophole, the DoF official said legal and tax experts have agreed that because the transfer fees are not explicitly exempted from VAT under the National Internal Revenue Code, these should be covered by the consumption tax.
Chua said the BIR has advised the DoF that there is no need to amend the Tax Code. But a revenue regulation must be issued to remind companies that transfer fees on domestic remittances are subject to the VAT.
“The transfers are being done in any kind of businesses like pawnshops, which used to be only pawning. Now, they are also into money transferring. This is the gray area or loophole that we are correcting. But we were advised by the BIR …. to just clarify it through a regulation,” he said.
The money sent to the Philippines by OFWs is covered by the tax laws of the country of origin of the remittance, Chua said.
Latest Bangko Sentral ng Pilipinas data showed that OFW remittances totaled $10.02 billion in January to April, up 4.7 percent from $9.57 billion a year earlier.