THE DEPARTMENT OF FINANCE is throwing its support behind a plan to increase the discount on purchases enjoyed by senior citizens from 20 to 32 percent.

"We pose no objection to the proposed increase in the discount rate," said the DOF in a position paper on Senate Bill No. 2154, which seeks to raise the discount on purchases of senior citizens.

Under the Senior Citizens law, or Republic Act No. 9257, senior citizens are given a 20-percent discount in restaurants, cinemas, hotels, hospitals and other establishments. The same discount applies to their public transport fares.

The DOF usually opposes bills seeking to grant additional tax incentives, stressing the need to shore up government's revenue collection.

But the DOF said the government could afford to grant a higher discount for senior citizens.

Establishments directly extend discounts to senior citizens, but these establishments can deduct the discounts from their income tax liabilities.

The DOF said the current 20-percent discount enjoyed by senior citizens is "nominal," since their purchases are also subject to the 12-percent value-added tax. Taking VAT into account, the "real" discount enjoyed by senior citizens on their purchases is only 10.4 percent.

Prior to February 2006, the VAT rate stood at 10 percent. When VAT was still at 10 percent, the "real" discount enjoyed by senior citizens on their purchases was 12 percent.

If the intention is only to restore the "real" discount of senior citizens to 12 percent, then the "nominal" discount rate should only be increased to 21.43 percent and not 32 percent as proposed by Senator Loren Legarda, author of Senate Bill 2154.

But if the intention is to give a "real" 20-percent discount to senior citizens, then the "nominal" discount rate should be increased to 28.57 percent, the DOF said.

Increasing the nominal discount rate to only 21.43 percent would lead to an annual revenue loss of only P105 million. Raising the nominal discount rate to 28.57 percent would lead to forgone revenues of only P631.78 million a year.

There were actually proposals to exempt senior citizens from paying the value added tax.

But the DOF did not agree to it on grounds it would result in bigger revenue losses for the government compared to if the discount was increased.

According to DOF's estimates, the government would lose less than a billion pesos, or P885 million, in potential tax collection a year should the discount rate be increased from 20 to 32 percent.

According to Legarda, it is right to provide additional assistance to senior citizens as they are "significant members of society."

Besides seeking to increase the 20-percent discount on purchases of senior citizens, the bill also aims to impose sanctions on pharmacies that do not extend the discount.