DOF proposes expanded VAT coverage instead of income tax cuts

Finance Secretary Cesar Purisima. INQUIRER FILE PHOTO

MANILA, Philippines – Any tax-eroding measure should be compensated by new and additional revenue-generating schemes, including expanding the coverage of the value-added tax (VAT) system and widening the tax base, Finance Secretary Cesar V. Purisima reiterated Wednesday.

On the sidelines of the 2015 budget hearing at the House of Representatives, Purisima told reporters that a “holistic and balanced review” of the tax system has been ongoing, after which the Department of Finance (DOF) would present to Congress the “best option” amid calls to slash taxes even as the government has been struggling to generate more revenues.

Purisima said the International Monetary Fund as well as the World Bank have extended technical assistance for this endeavor.

The ongoing review of the country’s tax system is multi-pronged as it is looking at income taxes, transaction taxes and also import duties, according to Purisima.

The review is also aimed at making the tax payment process easier. “It’s important that we make it easier for our people to comply because it has always been a fact that our tax base is narrow—marami pong hindi nagbabayad ng tamang buwis (many do not pay the right taxes),” Purisima pointed out.

He said the DOF might be amenable to tax exemptions but only if there were counterpart measures to balance the potential erosion in revenues.

For instance, the proposed bill aimed at slashing the taxes on 13th-month pay and bonuses would result in P40-60 billion in revenue losses a year, Purisima said. These losses would be as big as the funds being infused into the government’s conditional cash transfer program, he cited.

“If you bring down income taxes, we will have reduced revenues. So we’re proposing that they give us more administrative capacity to broaden the tax base or adjust VAT exemptions,” Purisima said, referring to a number of products not yet covered by VAT.

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