DOF willing to raise nominal discount rate for senior citizens

MANILA, Philippines - The Department of Finance has no objections to a bill increasing the nominal discount rate of senior citizens but said it must be accompanied with "improved and stricter rules to prevent unintentional drain" in government revenues, it said in a position paper. Senator Loren B. Legarda has filed Senate Bill No. 2154 to increase the discount rate to 32% from 20% on the goods and services purchased by senior citizens as provided under Republic Act (RA) 9257, which defines senior citizens or elderly as those at least 60 years old. "We pose no objection to the proposed increase in the discount rate. We wish to note that senior citizens have been subject to value-added tax (VAT) even before passage of the original Senior Citizens Act (RA 7432) in 1992. The VAT has been in place since 1987...An increase in the nominal discount rate may be considered should it be desired that the effective discount rate be raised to either 12%, [the effective discount when the Senior Citizens Act was introduced in 1992], or 20%," the Finance department said. Ms. Legarda said amendments to the existing privileges were "fundamental to adjust to recent events and social realities and to effectively carry out the objectives" of the law," noting that the 12% expanded VAT resulted in senior citizens effectively receiving "less than half" of the 20% discount intended. "The intent of the bill is threefold: re-enforce state support for senior citizens through discounts, sanction pharmacies and drug stores for non-compliance to the Senior Citizens Act and effectively address the health concerns of our senior citizens," she added. The government estimates P1.5 billion in revenue losses from VAT exemption from medicines but a higher P18.81 billion in revenue foregone is expected as the House of Representatives is pushing for VAT exemption on all goods and services purchased by the elderly. At a 10% VAT rate, the discount is reduced to an effective discount rate of 12%. The Finance department said the "reformed" VAT law "did not repeal" the privileges of the senior citizens as discounts continue to apply on goods and services they consume. The incremental effect of the 12% VAT is to reduce the effective discount rate to 10.4%, it added. "An increase in the nominal discount rate may be considered should it be desired that the effective discount rate be restored to 12%. In that case, a nominal discount rate of 21.43% will reinstate the effective discount rate to 12%. However, in a case the full effective discount rate of 20% is preferred instead, a nominal discount rate shall be set to 28.57%," the Finance department said. The government noted abuses in senior citizen privileges. "A discount not only means reduced collection in VAT revenues but in income tax revenues as well, since discounts can be claimed as deductions from the gross income of the seller," the Finance department said. A group of senior citizens is willing to accept the Finance department position. "We in Coalition of Services for the Elderly favor older people being VAT-exempt but the Department of Finance has made it clear that, as far as they are concerned, that is not an option but they are willing to consider the 30% discount. We can settle for that," advocacy officer Edward M. Gerlock told BusinessWorld. — Ruby Anne M. Rubio, BusinessWorld