MANILA — Reduction in the current 12 percent Value Added Tax (VAT) rate in the Philippines to help the poor cope with higher prices of several goods may not need a cut in the VAT rate per se.
Finance Secretary Carlos G. Dominguez III stressed this, noting there are other options aside from cutting the VAT rate.
He cautioned people “to be very careful” on suggesting any reduction in VAT because of the huge task to finance the Duterte administration’s massive infrastructure program, among others.
The current government plans to spend at least PHP8 trillion until 2022 to construct necessary infrastructure nationwide, especially in Mindanao.
There have been several moves calling for the reduction in VAT rate, one of which is Senate Bill No. 1671 filed by Senator Risa Hontiveros last January 30.
The bill, which seeks to cut VAT rate to 10 percent, is aimed at helping the poor cope up with the effect of the tax reform, which reduced the number of sectors or items that are VAT-exempt.
Dominguez said Finance officials have not calculated the impact of any reduction in VAT rate.
He said any move on this needs further discussions and pointed out that “we have to be very careful about reducing the VAT rate.”
“There might be a possibility to reduce the rate by eliminating all exemptions, that is one possibility, but we haven’t calculated that yet. But definitely we have to look at all the alternatives,” he said.
The Finance chief noted that while the current VAT rate in the country is 12 percent, the government only collects 4.7 percent as percentage of GDP.
He, thus, hopes for improved collection to a level of at least 7 percent by eliminating exemptions.
“Of course we are open to reducing the rate of the VAT. Unfortunately in the past VAT has been used as a fiscal incentive which is really wrong,” he added.
VAT rate in the country, which is imposed on sale of goods and services, was hiked to its current level from 10 percent in February 2006 under the administration of former President Gloria Macapagal-Arroyo in a bid to improve the government’s fiscal position and allow tofund more programs.