Earlier, the Duterte administration was considering the removal of the Value-Added Tax (VAT) exemption granted to senior citizens and persons with disabilities to make up for revenue losses from bringing down personal and corporate tax rates to 25 percent over a three-year period. But after several reports speculating on whether the government will pursue this action, Finance Secretary Carlos Dominguez said on August 22 that the VAT exemption on food, medicine and education for seniors and PWDs is non-negotiable, reported the Philippine Star.
Dominguez said that the ongoing assessment on the VAT exemptions is part of the government’s effort to make the Philippine tax system fair and equitable.
He added that they are considering adjusting for inflation of the tax on fuel, removing VAT exemptions, and rationalization of fiscal incentives to cover the country’s revenue losses after the reduction of corporate and personal income tax rates.
The Philippines charges 12 percent VAT rate, while the neighboring Thailand only imposes 7 percent. However, both countries’ VAT collections account for 4.2 percent of gross domestic product (GDP).
Dominguez explained, “So in other words, we have a lot of exemptions and we have lots of zero-rated transactions. We have to collect on that side. However, we will not remove the VAT exemptions on food, medicine, and education. Those are very necessary.”
The government also eyes simplifying the individual taxpayers’ brackets.
In a report published by Manila Bulletin on August 21, Dominguez said that there will be no raise to the 12 percent VAT, but the VAT exemptions enjoyed by some individuals, such as the senior citizens, might be limited.
He added that even if he is a senior citizen himself, he noted how “unfair” it would be for seniors who could afford to dine out at luxury restaurants to not pay VAT while other people are living in poverty.
“If I go buy a meal that is P1,000, I get a subsidy of P120 because I don’t pay the VAT. Now, is that fair to [another senior] guy who needs the P120, but he doesn’t have the money to pay expensive meal?” Dominguez said.
He added that food like fresh vegetables, fish, meat and rice, medicines, and education will remain exempt from VAT. However, other goods and services deemed non-essential for senior citizens, like luxurious lifestyle, will be charged with VAT.
“We want it to be fair. Why should I or she be subsidized [by the government] when that guy cannot get it [because he has no financial means to be able to afford it]?” Dominguez said.