The government plans to increase the value added tax exemptions enjoyed by micro, small and medium enterprises, a Finance official said Tuesday.
Finance Undersecretary Antonette Tionko told reporters at the sidelines of a Senate hearing on tax reforms the plan was to increase the VAT exemption threshold on the sale of goods and properties from P1.9 million to P3 million.
A company’s gross annual receipts/sales on the sale or lease of goods or properties or performance of services not exceeding P1,919,500 are subject to 3-percentage tax. An amount higher than that is subject to 12-percent VAT.
Tionko said the higher threshold was expected to help MSMEs. “If we make it [threshold] P3 million, if the amount of your sales is not over P3 million, then you’re not subject to VAT. So it’s just to even it out. It’s more beneficial for them,” he said.
Tionko said while the proposal could result in revenue losses for the government, its main objective was to simplify the compilation process for SMEs and to safeguard them from possible effects of the other proposed tax measures such as increasing the excise tax on petroleum products and broadening the VAT base.
“We don’t have the exact figures [for losses]. It’s probably not a lot. It’s gonna be more with the P3 million threshold. Because it’s simplifying things for them to make it efficient,” Tionko said.
Finance Undersecretary Karl Kendrick Chua said the agency was also looking at lifeline subsidies for low-income electricity consumers to protect senior citizens and persons with disabilities from the impact of the proposed increase in the excise tax on petroleum products.
He said the proposed social protection measures were being fine-tuned as a part of the Tax Reform for Acceleration and Inclusion Act.
“The protection really comes from the increase in their VAT threshold to P3 million, so that the micro and small enterprises with gross sales of at most P3 million will not be affected by the broadening of the [VAT] base. They will of course still pay their percentage tax,” said Chua.
Chua said changing the form of benefits for the vulnerable sectors from outright exemptions, which favored both the rich and the poor, to targeted social protection measures would help plug the massive leakages in the VAT system.
“We very much respect and would like to help the poor and vulnerable people who would be affected, but we think that a better system to do it is through the expenditures side, not the tax side,” Chua said.
“This is so that we can avoid the leakages and in fact transfer the leakages that we [plug] to provide better services,” he said.
Chua said indigent senior citizens would also be protected by providing them with higher social pensions, while PWDs would get expanded health insurance coverage and other benefits.
“We propose to do a highly-targeted subsidy reform program wherein … the poorest 50 percent of households will be fully protected through a highly-targeted unconditional cash transfer in the initial year, and that means around P200 to P500 per month or up to P6,000 a year per household, and this is calibrated based on the possible increase in inflation and the impact of the higher oil [tax increase] on their lives,” said Chua.
