House taxation body rethinks 70% input VAT cap

BY PAUL C.H. HOW, BusinessWorld Reporter Members of the House of Representatives ways and means committee are considering raising or scrapping altogether the cap on credit input tax, as found in Republic Act 9337. Still, ways and means committee chairman Rep. Jesli A. Lapus of Tarlac expressed wariness that talks on the matter would open the entire law to change. "In principle, I’m okay with removing the cap," he said, recalling that the 70% cap on input tax was a provision inserted during bicameral conference debates, and was not included in the original House and Senate versions. He said, however, that he was "first looking for any administrative solutions. We don’t to want to reopen the whole law. [The amendment] can be done, but it may be too early to do so." House ways and means vice-chairmen Rep. Exequiel B. Javier of Antique and Rep. Eric D. Singson of Ilocos Sur have filed House Bill Nos. 4535 and 4493, respectively, to rectify the situation, which businessmen have said has been eroding profits. Mr. Singson, like Mr. Lapus, was cautious with regard to amendments, saying a consensus among House members would have to be reached on what exactly needed to be changed, before reopening the law. This, he said, would prevent other matters from being added during committee hearings or floor debates. His bill raises the input tax cap to 90%. Doing so, he says in the bill’s explanatory note, would be acceptable to the business community and also "serve the purpose of generating the tax revenues needed by the government to finance its basic projects." The Finance department estimates almost P7 billion in additional revenue from the 70% cap. Mr. Javier’s bill, on the other hand, lifts the cap altogether, saying it was "fueling inflation." He argued that limiting the amount of input tax made the 12% VAT even more burdensome, since it left 30% of a business’ expenses non-creditable in computing VAT payments. Mr. Javier said these firms had no option "but to raise prices in order to recover their expenses." House ways and means senior vice-chairman Rep. Herminio G. Teves of Negros Oriental said the removal of the cap should vary according to sector. Before VAT, a fixed sales tax was in place, which he said would especially benefit retail trade if used today. "We can go back to the old system with the retail trade, to as low as a 1% fixed sales tax," to be paid when reselling such items. The manufacturing sector, however, could handle the current system, he said, even with the input tax continuously carried over to the following quarter, due to the sector’s generally higher profit margins. Senator Sergio R. Osmeña III, who is seeking a 90% cap through a bill of his own, said the measure must still originate and pass through the lower chamber first.