Budget chief opposes proposed cut in VAT rate

Budget Secretary Benjamin E. Diokno on Monday said it was not a good time to bring down the value-added tax (VAT) to 10 percent from the current 12 percent as proposed by Senate President Vicente Sotto III, saying the country’s tax base was still too narrow.

“I think we should see how things develop first. Let’s finish the passage of the five tax (reform) packages. I think it’s not time to go back to 10 percent,” Diokno told reporters on the sidelines of the Samahang Plaridel Kapihan sa Manila Hotel forum.

Last Sunday, Sotto said that slashing the VAT rate could be a possible countermeasure to rising inflation, which had been blamed by some critics on the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

Diokno said that any reduction of the VAT should be made only  in “extreme cases.”

“I think some countries suspended it but they did not really abandon it. During the time of GMA [former president Gloria Arroyo] many countries suspended the VAT, reduced it by 1 or 2 percentage points, but as soon as things normalized they returned it,” Diokno said.

In the case of the Philippines, the Arroyo administration raised the VAT rate to 12 percent from 10 percent previously as the government then suffered from huge budget deficits, Diokno noted.

For Diokno, who during the time of former president Corazon Aquino initiated the imposition of the 10-percent VAT, the tax base should be broadened first before any reduction in the VAT rate.

“If you have a broad base you can afford to have a lower tax rate,” Diokno said.

The Budget chief also noted that VAT was imposed in over 90 percent of the countries in the world.

“It’s a better tax system than the personal income tax system,” Diokno said, pointing out that VAT is a tax on consumption.