Philippines only able to collect 40% of VAT: Diokno
The country should improve its collection of value-added tax (VAT) since it is more inefficient compared to other countries, Finance Secretary Benjamin Diokno said Tuesday.
During a Malacanang press briefing, Diokno said the Philippines had only collected P723 billion from VAT from 2016 to 2020, which was 40 percent of the expected collection.
This was before the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, a law that introduced reforms to the corporate income tax and incentives systems, was passed in March 2021.
“While we, the Philippines has the highest VAT rate compared to the other countries in this part of the world, our VAT collection is the most inefficient at 40 percent. It should be at 100 percent but we are only able to collect 40 percent because of a lot of (tax) exemptions,” Diokno said.
Citing a World Bank study, he said the country has granted many tax incentives and exemptions that are outside the Tax Code.
Around 539 billion should have been collected from VAT, he added.
Diokno said the distinction between exporters and local businesses must remain to keep integrity of the Philippine tax framework.
Diokno said before the CREATE Act was signed into law, there were 56 lines of exemptions and 84 additional exemptions in a special law.
The Department of Finance (DOF) has asked the International Monetary Fund (IMF) to conduct research on widening the tax base.
“We actually talked with the International Monetary Fund and we asked them to conduct a study on where we can improve on broadening the tax base,” Diokno said.
“Meaning, maybe find areas where we can recover from too much exemptions. For example, one exemption is the cooperatives. They don’t really pay VAT. So the IMF study will tell us how do we recover kasi 0.4, that’s really poor performance. But you know, the value-added tax is the best tax in the world. I think being imposed in 90 percent of the countries in the world. So it is our interest to improve on the efficiency of the VAT,” he added.
Diokno also said there is a global trajectory to shift from income-based taxes to consumption taxes.
“Personally, I prefer to tax consumption because consumption is what you take away from society...On the other hand, income is your contribution to society. You are paid because that's your value to society. So to me, it’s fairer that we tax consumption rather than income," Diokno said.
“Our VAT system is actually pro-poor. So in this study of the OECD (Organization for Economic Cooperation and Development), consumption taxes are less vulnerable to the effects of globalization. In a study by OECD, it highlighted the need to shift the tax mix away from the income taxes toward taxes that have less negative impact on economic growth including taxes on consumption,” he added.
He also argued that consumption taxes were more “neutral” since they are based on spending rather than income and wealth.
They are more “progressive” because when income increases households tend to spend their money on goods and services from the informal sector, he added. Jaspearl Tan/DMS
