Finance agency eyes subsidy, not VAT exemption, for PWDs

The Department of Finance is opposing the proposed legislation aimed at granting persons with disabilities exemption from certain value-added tax (VAT) payment.

Instead, the finance department is proposing the extension of subsidies to the so-called PWDs, claiming that “subsidies serve PWDs’ interests better than unfeasible VAT exemptions.”

“Granting targeted subsidies through the expenditure approach is more transparent, efficient and effective in empowering PWDs. We reaffirm our commitment to PWDs by advising against a VAT-exemption measure that would be hard to implement and prone to abuse. We will work with Congress to pass sensible and balanced proposals that better serve PWD interests,” Finance Undersecretary Jeremias N. Paul Jr. said in a statement.

Early this week, the House of Representatives approved on third and final reading House Bill No. 1039, an amendment of the Magna Carta for Persons with Disabilities, which seeks to grant tax exemptions on PWDs.

“The government’s commitment to the PWD sector has always been clear and resolute: PWDs can draw from different benefit programs of government agencies. Further, the DOF is working in earnest to boost revenues to increase funding for these programs,” the DOF said in a statement.

It said that while the initiative of the bill author was commendable it was not the best way to serve PWDs.

Rep. Ferdinand Martin G. Romualdez of Leyte authored the bill.

According to the DOF, such a law “will expose government revenues to massive risks due to abuses and leakages.”

“The long-standing international argument against VAT exemption is clear: Proposals like this will result in tax administration problems and even compliance issues for the business sector. For the tax administrators, ensuring that only PWDs will avail themselves of the exemption, and not unscrupulous individuals seeking to abuse the system, will be highly difficult,” the DOF pointed out.

For instance, businesses could be burdened as such a measure will require separate accounting records for purchases made by PWDs, on top of those of senior citizens, the DOF said.

PWDs represent about 1.5 percent of the population and the proposed tax exemption is seen to translate to revenue loss of about P1.12 billion a year, according to the DOF’s estimates.

However, the DOF said leakages could jack up the estimated revenue loss.

“The measure poses administrative challenges in monitoring whether the purchases are for the exclusive use of and enjoyment of PWDs,” it said.

“As the Philippines is the second least efficient in terms of VAT efficiency among the Asean 5, the country can still afford to pass a VAT-exemption measure that cannot be guaranteed to be availed solely by PWD citizens,” the DOF said. Besides the Philippines, Asean 5 includes Indonesia, Malaysia, Singapore and Thailand.