PH eyes improving VAT system amid 'poor' efficiency

Jessica Fenol, Job Manahan and Pia Gutierrez, ABS-CBN News

MANILA — Philippine economic managers are looking to improve the country&#x27;s value-added tax (VAT) after studies showed it has the lowest efficiency level in the region, Finance Secretary Benjamin Diokno on Tuesday.The Philippines posted the lowest VAT efficiency ratio in the ASEAN region from 2016 to 2020 at 0.40 despite having the highest VAT rate in the region at 12 percent, based on the International Monetary Fund Tax Reform Database.VAT efficiency was defined as the revenue obtained as a percentage of consumption or GDP, for each tax rate point, the Department of Finance said.On average, the government collected P723 billion from VAT annually from 2016 to 2020, or only 40 percent of all expected VAT collection, Diokno said in a briefing.The policy gap - or the amount supposed to be collected and what is actually collected - could reach as high as P539 billion, he said. &quot;So while we the Philippines has the highest VAT rate compared to the other countries in this part of the world, collection is the most inefficient,&quot; Diokno said.Compared to the Philippines, Indonesia has a 0.50 VAT efficiency level with 11 percent VAT rate, Singapore&#x27;s efficiency level is at 0.71 while its VAT rate is just at 8 percent. Meanwhile, Vietnam has a 0.70 efficiency level and an 8 percent VAT rate and Thailand has a 0.79 efficiency rate with its 7 percent VAT level, DOF data showed. The DOF also cited a 2018 World Bank study which revealed that the Philippines&#x27; tax system is &quot;plagued&quot; with exemptions outside the tax code.Prior to tax reforms, the Philippines have 56 lines of exemptions and an additional 84 exemptions under special laws, he added.&quot;We actually talked with the International Monetary Fund and we asked them to conduct a study on where we can improve on broadening the tax base meaning maybe find areas where we can recover from too much [many] exemptions,&quot; Diokno said in a briefing. &quot;I say 0.40 that&#x27;s really poor performance, but you know the value-added tax is the best tax in the world. It&#x27;s I think being imposed in 90 percent of the countries in the world, so it is in our best interests to improve on the efficiency of the VAT,&quot; he added.Diokno, however, said that the tax system inherited from the former administration of Rodrigo Duterte was better than the previous administration. Duterte&#x27;s economic team has approved tax reforms that cut income taxes for workers as well as rationalized corporate income tax, among others.Prior to the passing of Corporate Recovery and Tax Incentives for Enterprises or CREATE law, there were enterprises enjoying lifetime tax exemptions, Diokno said.Diokno said the government will also look into potential improvements in its medium-term fiscal framework but he insisted that the country&#x27;s revenue system is doing well.&quot;So we are studying it, it&#x27;s not a perfect system so we&#x27;ll look for improvements but right now our revenue system is doing well,&quot; he added.The government could recover VAT exemptions through cooperatives, Diokno said.“Iyon, madami talagang hindi nagbabayad ng VAT because of the cooperatives ‘no,&quot; he said.Diokno, meanwhile, said that the government favors giving incentives to export-oriented firms over domestic market enterprises, as registered exporters “are competing with the rest of the world and should not be put at a disadvantage.”Diokno said he is also in favor of &quot;pro-poor&quot; taxation or consumption-based taxes instead of income-based tax, which he said is the current global trend.&quot;I prefer to tax consumption because consumption is what you take away from society OK because if for example, you&#x27;re in you&#x27;re independently wealthy you got your money from your grandpa or your or your dad you don&#x27;t work, so no income,&quot; Diokno said.The government is also pushing collection agencies to improve in order to create &quot;better&quot; revenues, Diokno said.<ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/11/14/22/vat-on-netflix-and-other-digital-services-okd-by-house">VAT on Netflix, Spotify other digital services approved by House on final reading</a></li>	<li><a href="https://news.abs-cbn.com/business/05/25/22/dof-eyes-new-taxes-wider-vat-to-pay-rising-debt">DOF pushing new taxes, wider VAT, halt to income-tax deductions to pay high debt</a></li>	<li><a href="https://news.abs-cbn.com/business/04/13/23/diokno-says-infrastructure-spending-front-and-center-of-ph-growth-strategy">Diokno says infrastructure spending &#x27;front and center&#x27; of PH growth strategy</a></li></ul><div> RELATED VIDEO</div><figure class="op-interactive"><iframe allow="autoplay; fullscreen" frameBorder="0" height="100%" id="ivsplayer01" scrolling="no" src="https://player.ivideosmart.com/ivsplayer/v4/dist/html/iframe-src.html?iframeid=ivsplayer01&amp;key=e8c22c015ca9eafa76f1e3edfa03c603&amp;spid=3001339&amp;vid=2052314" width="100%"></iframe></figure><div class="iwantbar">Watch more News on <a href="https://www.iwanttfc.com/#!/browse/Genres/News/tag_id_genres/id_news" target="_blank">iWantTFC</a></div>

The Philippines has the highest VAT rate in ASEAN but the lowest collection efficiency.

PH eyes improving VAT system amid 'poor' efficiency | ABS-CBN

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PH eyes improving VAT system amid 'poor' efficiency

PH eyes improving VAT system amid 'poor' efficiency

Jessica Fenol,

Job Manahan and Pia Gutierrez,

ABS-CBN News

Published May 30, 2023 01:06 PM PHT

|

Updated May 30, 2023 04:30 PM PHT

Read More:

value added tax

VAT

VAT system

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ASEA

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