The government must view the proposal to cut the rate of the value added tax as an investment in the poor rather than simply a loss of revenue, Senator Risa Hontiveros said Monday.
The senator said this after the Department of Finance expressed openness to her proposal to reduce the VAT on condition that all exemptions are lifted.
“While I am glad that the DoF is open to the idea of cutting the VAT rate, I am worried that the condition of lifting all VAT exemptions, regardless of its negative impact on the poor, would cancel out whatever benefits a reduced VAT rate would provide our poor people,” Hontiveros said.
“There are many vulnerable sectors that need to be helped and protected like the senior citizens, persons with disabilities, and small and medium-scale cooperatives,” she added.
The government must view the proposal to cut the VAT rate from a new set of lenses, the senator said.
“Nothing will be thrown away here. It will still go to the people, especially the poor,” she said.
“We are investing in our people, strengthening their purchasing power, and contributing to the effort to redistribute wealth,” Hontiveros explained.
She also downplayed the government's “doomsday scenario” that a lowered VAT would hurt its P8-trillion infrastructure program, as the DoF expects tax reforms to generate billions in revenues.
She said the finance department itself projects P130 billion in revenue gains from the Tax Reform for Acceleration and Inclusion Law or TRAIN, so the scenario being predicted by those who insist on a 12- percent VAT is unlikely.
“The goal of a lowered VAT rate is to provide relief to our citizens reeling from the effects of TRAIN, especially those in the informal economy who did not enjoy income tax reduction, or minimum wage earners who don’t pay income tax anyway but are made to bear new burdens from consumption tax hikes,” Hontiveros said.
Last week, Hontiveros filed Senate Bill No. 1671 or the “Bawas VAT Bill,” cutting the VAT rate as relief for poor families adversely affected by the TRAIN law.
The measure seeks to enforce a progressive reduction in the VAT rate, bringing it down to 10 percent effective Jan. 1, 2019.
By Jan. 1, 2022, the measure will again reduce the rate of VAT to 8 percent, should the previous year’s realized revenues from VAT reported in the budget of expenditures and sources of financing submitted to Congress equal or exceed 4.5 percent as a percentage of Gross Domestic Product.
This will align the country’s tax system with the Asean region, the senator noted.