Senior citizens’ discounts

The value-added tax (VAT) exemption that the country’s senior citizens are presently enjoying is in the crosshairs of President Duterte’s economic managers.

Under existing regulations, the 12 percent VAT is waived on purchases by senior citizens of certain food products and medicines. The exemption also applies to, among others, medical professional fees, hotels, restaurants, transportation facilities and cinemas.

According to Finance Secretary Carlos Dominguez, the exemption is aimed at helping disadvantaged senior citizens but has ended up instead benefiting the wealthy rather than those in need.

He cited, by way of example, a senior citizen who spends P10,000 in a hotel or restaurant and gets a P1,200 subsidy from the government for what may be considered a luxury.

On the other hand, a poor senior citizen who spends P1,000 in the market gets a subsidy of just P120 from his purchases.

Dominguez said senior citizens should be given direct subsidies instead and that the savings from the lifting of the exemption could be channeled to investments in agriculture, infrastructure and social services.

Although he did not cite the particular VAT perks that would be set aside, he pointed out that the exemption would remain for health, education and food purchases.

By and large, the proposed review of VAT exemption on senior citizens (which may eventually cover those given to persons with disability) is reasonable and consistent with the objective for which the tax privilege is granted.

Indeed, if a senior citizen can afford to spend P5,000 or more in his favorite restaurant, the foregone P600 or so VAT exemption for that meal will not burn a hole in his pocket.

In the same token, if a senior citizen has the resources to pay for the perks and comforts of a business class seat in an airplane, he is not going to fret over the VAT that he has to pay for that flight.

But the same cannot be said for some senior citizens who, although not rich, may want to break the monotony of daily household life by eating out once in a while, or traveling to local destinations for recreational or personal reasons.

The point is, in reviewing the VAT exemption for senior citizens, reasonable classifications or distinctions should be made about the amount involved or nature of the affected activity.

Rather than totally lift the exemption, for example, on restaurant bills, a ceiling may be imposed on the covered amounts.

Thus, if the food expense of a senior citizen is below P1,000, the exemption shall apply; if that amount is exceeded, the VAT will be imposed. The same formula can be used for domestic transportation, recreation centers and hotels.

The cutoff amounts will address the financial or paying capacity of the senior citizens concerned, i.e., those with deeper pockets will forfeit the VAT exemption while those who rely on their retirement pension for their sustenance will enjoy the tax benefit.

In effect, wealthy senior citizens will “suffer” a little while their less financially endowed counterpart will be given the opportunity to squeeze more value from their meager resources.

A balancing of interests is accomplished in this arrangement. The government gets extra revenue from the VAT exemption given up by wealthy senior citizens, and at the same time the objective of the law to make life a little easier for senior citizens with financial constraints is met.

And if the government decides to tweak the VAT exemption, it should make sure that its implementing rules are tight and there is little opportunity for them to be circumvented or abused, otherwise the proposed amendment will be meaningless.