Gov't losing P105B a year to tax leaks, says DOF

The government has been losing some P105 billion a year to "leakages" in the value-added tax (VAT) exemptions for senior citizens and corporations, the Department of Finance said on Thursday.

An estimated P100 billion comes from losses in the form of corporate tax holidays and P5 billion from the VAT exemptions of senior citizens, Finance Undersecretary Antonette Tionko said in an emailed statement

“We submit that tax policy reform is needed to achieve a simpler, fairer, and more efficient tax system characterized by low rates and a broad base," Tionko also said in her opening remarks at the International Tax Forum in Makati City.

"This diverges from the inequitable, complex, and inefficient system that we are currently faced with. And, you know, this results into having some of the highest tax rates in Asia, here in the Philippines, and lower collections,” she said.

According to Tionko, such reforms have been included in the government's comprehensive tax reform program.

Among the offsetting measures proposed by the DOF is expanding the VAT base by trimming the numerous exemptions in the system that have been subjected to abuse.
 
“We’re thinking that it would be more prudent to increase the coverage of social protection, perhaps through targeted cash transfers or higher pensions," she said.
 
The DOF is studying how it can improve the current system of corporate taxation “where foregone revenues are estimated at almost P50 billion per year on income tax holidays, and another P50 billion pesos in the special rate regime among large firms.
 
“For example, manufacturing companies in the special zones pay just one-third of what companies outside the zones pay; special manufacturing firms pay P8.00 per P1,000.00 of revenue, while regular manufacturing firms pay P23.00 per P1,000.00 of revenue,” she said.
 
“The same trend is also seen in the services sector. At a standard cost of P25 million per kilometer for a two-lane road, that P100 billion translates to about four thousand kilometers of new roads every year,” she added.

President Rodrigo R. Dutere's economic team presentedin June the administration's 10-point socioeconomic agenda which includes a progressive tax reform to increase revenue and lower the personal income tax.

The first package of proposals – reducing the personal income tax and expanding the value-added tax base – was submitted to Congress in September. — Jon Viktor Cabuenas/VDS, GMA News