Tax leak from seniors’ VAT exemption to hit P10B

Revenue loss arising from the value-added (VAT) exemption of senior citizens is seen to hit P10 billion this year.

To plug this revenue leak, the Department of Finance is planning to replace this privilege with a system that will provide targeted subsidies to indigent elderly.

In a statement, Finance Undersecretary Karl Kendrick T. Chua said the DOF was planning to “transform some of the VAT exemptions into a system that would provide social protection to those who deserve them, such as indigent seniors and other vulnerable sectors.”

The first package of the proposed tax policy reform package pending in Congress sought the expansion of the VAT base by limiting exemptions to raw food, education and health products and services, while removing the exemption on senior citizens’ nonessential purchases from the 12-percent VAT.

“We propose to target the benefits only to the poor and vulnerable to plug the leakage which is very rampant in our estimate. The World Bank estimated close to P10 billion in leakage in the senior citizen VAT discounts,” Chua said.

Government data showed that the revenue leak from senior citizens’ exemption ranged between P4.9 billion and P7.1 billion in 2012, which Chua said included foregone revenue from “nonseniors who benefit from the seniors’ VAT exemption.”

“The estimated nominal growth of consumption is about 35 percent between 2012 and 2016, thus the 2016 estimated leak is about P6.6 billion to 9.6 billion,” said Chua.

“A significant portion of the revenue to be collected under package one of the tax reform will go to subsidies and other forms of social protection for vulnerable sectors,” he said. — Ben O. De Vera