Finance Secretary Benjamin Diokno on Wednesday warned against legislating further exemptions to the Value-Added Tax law could undermine the country’s already robust fiscal performance and steady growth in gross domestic product.
Speaking at the Kapihan sa Manila Bay forum on Wednesday, Diokno said as matters stand, the country’s VAT efficiency rating is the lowest in Southeast Asia at 34.7 percent, which means less than a third of the potential VAT is collected by revenue agencies.
“While we have the highest VAT rate yet compared with ASEAN peers at 12 percent, our VAT efficiency is only 40 percent. So that means there’s still some room for improvement in our VAT collection,” said Diokno.
A pending bill in the House of Representatives seek to exempt basic goods from VAT to help alleviate the plight of the poor.
“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,” said Diokno, adding: “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.”
He noted a 2018 World Bank study that showed VAT exemptions, or the policy gap, account for 29.1 percent of potential VAT revenue, while the administrative gap accounts for 29.5 percent of potential revenue.
“Without exemptions, the potential revenue for VAT in 2018 is P1.85 trillion. In contrast, the actual VAT collection in 2018 was only P784.2 billion,” he said.
