The Philippines has a low revenue productivity compared to its neighbors in the Asia-Pacific region in the collection of its value-added tax (VAT), an Asian Development Bank (ADB) study showed.
In the 2016 edition of the report titled “A Comparative Analysis of Tax Administration in Asia and the Pacific,” the Manila-based multilateral lender noted the Bureau of Internal Revenue’s (BIR) VAT collections in 2013 only accounted for 2.2 percent of the gross domestic product, such that its revenue productivity was a low 0.183 percent.
Revenue productivity measures a country’s tax system vis-a-vis its capacity to generate funds. The ADB said this is determined by a combination of government policies and taxpayers’ compliance in paying their dues.
To compare, the VAT revenue productivity for Australia was 0.36 percent, 0.42 percent for Indonesia, 0.56 percent for Japan, 0.41 percent for South Korea, 0.71 percent for Kyrgyz Republic, 0.626 percent for New Zealand, 0.357 percent for Singapore, and 0.6 percent for Thailand.
Save for New Zealand and Kyrgyzstan, which slap a 15-percent and 12-percent VAT respectively, the six other countries impose a lower rate than the Philippines’ 12 percent.
This is one of the reasons why the Department of Finance (DOF) wants to reduce the number of VAT-exempt and zero-rated transactions.
“Our VAT tax rate is 12 percent and yet we collect as a percentage of GDP [gross domestic product] only 4.2 percent. Thailand, whose VAT rate is 7 percent, collects [also] 4.2 percent [of GDP]. In other words, we have a lot of exemptions and we have lots of zero-rated transactions. So we have to collect on that side,” Finance Secretary Carlos G. Dominguez III had said.
Under its proposed tax policy reform program, the DOF would be expanding the VAT base by limiting exemptions to raw food as well as other necessities such as education and health.
Amid imposing a 20-percent corporate income tax, the Philippines also had a low revenue productivity of 0.14 percent in 2013, the ADB said. The tax is the highest in the region, similar to the level imposed by Australia and Japan.