BIR not keen on VAT reduction to 6%

MANILA, Philippines – The Bureau of Internal Revenue (BIR) said the reduction of the value added tax (VAT) from 12 percent to six percent would complicate tax administration.

While there are no final computations yet as to the revenue impact of the measure, BIR Commissioner Kim Henares said in a telephone interview that the pending legislation would be difficult to administer.

“Personally, I think it would be difficult to administer. We would go back to the sales tax system and there will no longer be an audit trail,” she said.

On Tuesday, the House of Representatives approved a bill seeking to reduce the VAT to six percent from 12 percent. The measure also removes the so-called input and output VAT system wherein taxpayers file for deductions for their tax obligations.

Batangas Rep. Hermilando Mandanas, author of the bill, claimed that the measure would lessen the cost of VAT and result in additional revenues for the government.

“My estimate is that additional revenues could amount to as much as P50 billion a year,” he said.

Henares said that while this could indeed translate to higher revenues because the cap on input VAT would effectively be removed, the administration of a six- percent tax would be difficult.

Mandanas’ said there would be additional income because the measure would pave the way for the removal from deductions enjoyed by businessmen under the so-called output VAT.

“For instance, owners of malls and supermarkets are entitled to claim 12 percent of infrastructure cost, 12 percent of security cost and 12 percent of electricity as deductions,” he said.

As such, the measure changes the system into a “simplified system.” as it would no longer allow an input-output system wherein suppliers are allowed to file for deductions for their VAT obligations.

“The importer, the manufacturer, the wholesaler, the distributor, and the retailer, each of whom makes a profit, do not pay VAT because of the input-output VAT system, which allows them to make deductions.

These are the people we want to pay the reduced six percent VAT, together with the end-user,” he said.

He said the removal of these deduction mechanisms and schemes would result in higher VAT.

However, the Department of Finance said that the 12 percent VAT is more effective because a simple “sales tax” system does not consider the kind of economy in the country wherein there are a lot of manufacturing companies that produce VAT products.

A simple sales tax, said the DOF, was good only for “economies that do not produce VAT products such as processed goods and do not have manufacturing activities. –Iris C. Gonzales (The Philippine Star)