ESTIMATES by the World Bank placed the leakages from the value-added tax (VAT) exemptions for senior citizens at P10 billion this year, the Department of Finance (DOF) said on Thursday.
“The World Bank estimated P10 billion in leakages in the senior citizen discounts,” Finance Undersecretary Karl Kendrick Chua said during a recent technical working group meeting at the Senate on the DOF’s proposed tax reform plan.
Using data from the 2012 Family Income and Expenditure Survey (FIES), the World Bank estimated the leakage from the VAT exemptions at P4.9 billion to P7.1 billion in 2012, he noted.
“This includes non-seniors who benefit from the seniors’ VAT exemption,” Chua noted.
With the estimated nominal growth of consumption around 35 percent between 2012 and 2016, the 2016 estimated leakage is around P6.6 billion to P9.6 billion, he said.
The DOF chief economist said this is why the department is proposing to expanding the VAT base and channel the revenue collections to directly target indigent, elderly citizens who need financial aid the most.
The department plans to transform some of the VAT exemptions into a system that would provide social protection to deserving indigent seniors and other vulnerable sectors, he said.
“We are proposing to really target the benefits only to the poor and the vulnerable, so that we avoid the leakages which are very rampant in our estimate,” Chua said.
The VAT exemptions would be lifted but excluding raw food and other essentials, such as education and health care.
A significant portion of the revenues under Package One of the DOF tax reform program will go to subsidies and other forms of social protection for the vulnerable sectors.
“To mitigate the impact of the tax increases on the poor and low income households, earmarking for highly targeted subsidies is proposed to fully protect the poorest 50 percent of households and partially protect the working class,” according to the proposed tax bill submitted to the Congress last month.
A quarter of the incremental revenues to be generated from the excise tax on petroleum products will be used to fund the subsidies for the vulnerable sectors, while 75 percent will go to other social and infrastructure expenditures.
DOF spokesperson Paola Alvarez said earlier the 20 percent discount enjoyed by senior citizens would remain, and some of the VAT exemptions would be replaced by better alternatives to shield poor and low-income seniors from the impact of the tax reform plan.
“A much better option that would effectively provide aid to our indigent seniors are targeted cash transfers, expanded pensions, free rice and other subsidies that the government has been giving them under the Pantawid ng Pamilyang Pilipino Program or 4Ps,” Alvarez said.
The VAT exemptions to be lifted are those from dining in restaurants which are usually enjoyed by affluent senior citizens who can well afford to do away with such privilege.
“To illustrate, a senior citizen who can afford to eat at a fancy restaurant that charges him with a bill of 1,000 pesos, the exemption from VAT he will get is 120 pesos,” the DOF official said.
“Now, this amount of 120 pesos is something he doesn’t really need becausehe can afford to spend 1,000 pesos for a meal,” she added.
“Now if we compare this to a senior citizen who has to make ends meet to be able to afford maintenance medicine, the 120 pesos saved on VAT would go a long way. This is how we want to distribute a little wealth through taxation,” Alvarez noted.