THE Department of Finance will oppose proposals that will result in lower revenues from value-added tax, Secretary Benjamin Diokno said on Wednesday.
Under the existing policy structure for VAT or taking into account the existing VAT exemptions and zero rating, Diokno said the administrative gap computed for 2018 is P546 billion, or equivalent to 3 percent of GDP.
“This is 41.6 percent of potential revenue under the existing policy structure. This revenue loss would be higher if we introduce more exemptions to the VAT system. The government cannot afford to lose additional revenues on VAT,” Diokno said during the weekly Kapihan sa Manila Bay forum.
“It is also for this reason that the DOF does not support any legislative or non-legislative proposals that would further erode the VAT revenue base.
Even after TRAIN [Tax Reform for Acceleration and Inclusion] and CREATE [Corporate Recovery and Tax Incentives for Enterprises] laws, the DOF continues to push and implement tax policy and administration reforms on VAT,” Diokno said.
Diokno also said DoF would review the VAT exemptions, although he said those that pertains to education and health might possibly stay.
Diokno said without exemptions, zero rating and at 100-percent efficiency, it is estimated that the government has to be collecting VAT equivalent to approximately 10.7 percent of GDP.
“GDP is the peso value of all the goods and services that we produce in a given period [VAT inclusive]. At present, we are only collecting around 4.7 percent of GDP which makes the combined tax policy and administrative gap to around 6.0 percent of GDP,” he said.
He said the VAT revenue ratio remained low in the Philippines compared with other countries in the Asia Pacific region despite the expansion of the VAT base and the limiting of the exemptions in the last 25 years. It is way below its ASEAN neighbors like Thailand, Malaysia, Singapore, Vietnam, and Indonesia.
He said the VAT efficiency ratio averaged to around 17.4 percent while VAT revenue ratiois around 19.5 from 2013 to 2022 for BIR.
BIR’s VAT efficiency (from 18.4 in 2017 to 16.3 in 2018) and VRR (from 20.6 in 2017 to 18.3 in 2018) declined in 2018 despite the implementation of the TRAIN law which expanded the VAT base.
These indicators remained lower than pre-TRAIN levels which may indicate weakening of tax administration for VAT.
VAT collection in 2018 was even lower than the collection in 2017 resulting in a negative elasticity for 2018.
On the other hand, for BOC, the average VAT efficiency is 17.3 percent while the average VRR is 19.4 percent from 2013 to 2022.
In 2018, during TRAIN’s first year of implementation, VAT efficiency and VRR increased to 19.4 percent and 21.8 percent, respectively, both above the 10-year average and the 2017’s levels of 17.0 for VAT efficiency and 19.0 for VRR.
Meanwhile, Diokno said the interagency Development Budget Coordinating Committee will likely revise upward the revenue collection target this year given the higher-than-expected collections in the first five months.
“We do that on a quarterly basis. The DBCC will meet every quarter and we will likely revise it upward because we are coming up with new tax measures,” he said.
The government’s revenue target is P3.729 trillion for 2023, which is equivalent to 15.2 percent of GDP.
“I cannot commit at this time [as to what level will be the increase] but definitely we will revise it. Planning is just like that, as new data come in you revise,” Diokno said.
From January to May 2023, revenue collections reached P1.6 trillion, higher by 10.8 percent compared to the P1.437 trillion collections a year ago.
Tax revenues amounted to P1.414 trillion, up by 9.71 percent from P1.289 trillion a year ago.
Of the total amount, P1.054 trillion was collected by the Bureau of Internal Revenue while the Bureau of Customs’ collections accounted for P359.3 billion.