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ECONOMIC managers have rejected a proposal to increase value-added taxes from 12 percent to 14 percent and are opting instead to lift the VAT exemptions on 30 domestic goods and services and 13 types of transactions to bring in extra revenues of P350 billion, Budget Secretary Benjamin Diokno said Monday.
Submitting the 2017 budget proposal to Congress, Diokno said the plan was to “broaden the tax base,” noting that the VAT system works best when it is “broad-based.”
Yes we will revisit the VAT system and we will lift the exemptions. VAT is not a new tax.
Remember we are going to increase [the national budget] by spending P350 billion. We have to get that from somewhere, maybe, we reduce smuggling, we reduce two administrative measures, we improve collections. The P350 billion has to be financed somehow,” Diokno said as he submitted the P3.35 trillion budget proposal to Congress.
Finance Secretary Carlos Dominguez said there was a proposal to raise VAT from 12 percent to 14 percent to offset revenue lost from a cut in personal and corporate income taxes, but said he was not inclined to approve it.
By some estimates, we could double VAT collections simply by being more efficient in collecting it,” Dominguez said.
In his budget message to Congress, President Rodrigo Duterte said the government would resort to new borrowings and new revenues to pump prime the economy by increased spending on infrastructure to “push GDP [gross domestic product] growth to new heights next year” and throughout his term.
The larger fiscal deficit means that our borrowings will also increase–but these are new debts that will produce results,” the President told congressmen and senators.
The President said the budget deficit would reach P478.1 billion in 2017, equivalent to 3 percent of GDP. Some 80 percent of borrowings would come from domestic sources, and 20 percent from foreign lenders.
In his budget message, Duterte also spoke of a tax reform package.
We will soon propose to Congress a package of reform measures that will create additional revenues in a more equitable, efficient and simpler manner that does not burden the poor,” Duterte said. “It will increase the total revenue effort to about 17 percent of GDP in 2018. By 2022, the revenue effort should reach about 18 percent of GDP, comparable to other countries in Southeast Asia.”
By 2017, the President said the total revenue collections are expected to reach P2.48 trillion, or roughly 10 percent more than what the government targeted to collect in 2016.
It is equivalent to 15.6 percent of GDP. Tax revenues will comprise about 93 percent of the total revenue target and reach the equivalent of 14.5 percent of GDP next year, an improved tax effort compared to 14.1 percent this year,” the President said.
Diokno on Monday denied there was a plan to raise VAT to 15 percent–although Dominguez had mentioned a similar proposal at 14 percent.
The estimated revenues in the 2017 budget, however, were based on a 12 percent VAT rate, Diokno said.
We also expect to collect from non-tax revenues. We have increased the budget deficit from 2.5 percent to 3 percent of GDP. I think that is manageable deficit for the next six years… I think that will allow us to address the backlogs in public infrastructure and the needs of the Filipino people for a higher spending for education, and health and social welfare, also to address the requirements of the President to pursue peace and order and anti-drug policy in the Philippines, Diokno said.
So there’s no truth to the rumor that we’re going to increase the VAT from 12 percent to 15 percent. The VAT rate will remain at 12 percent but we will lift some of the exemptions on VAT coverage,” Diokno said.
Dominguez, on the other hand, said it was high time to adjust the tax on petroleum, given the low oil prices in the world market.
The Finance Department, he said, is studying different proposals that would increase fuel taxes.