Finance rejects House plan for new 6% ‘cascading’ tax

A HOUSE bill seeking to replace the 12-percent value-added tax with a 6-percent value simplified tax will make the country’s exports less competitive, increase local prices, and make it more difficult to raise government revenue, a Finance Department official said over the weekend.

“This will create extreme pressure on the government’s finances and will make fiscal consolidation in the short term even far more challenging,” Finance Undersecretary Gil Beltran said of the House proposal.

The proposed tax would bring an “immediate reduction in revenues that are collected at the ports.”

Unlike the value-added tax, the value-simplified tax would not allow manufacturers to collect the refunds on the taxes paid on raw materials that go into the final product, Beltran said.

That made it a turnover sales tax that would add to the cost at every stage in the production and distribution of goods.

“Consumers will definitely be put at a disadvantage,” Beltran said.

“While a consumer is expected to see only a 6-percent [tax] on his receipt, what is not obvious is that the basic price of the good will contain all the taxes that had to be paid at every stage that the good had to pass through before reaching the consumer, which could average about four stages for an ordinary consumer good involving the importer, manufacturer, wholesaler and retailer.”

Under such a system, an imported good that cost P100 would be sold to consumers for about P195.93 because of the successive taxes paid on each stage of its production and distribution.

Also, because exporters would not be able to recover the taxes paid on their raw materials, those would be included in the final price of their products, hence raising their cost and making them less competitive.

Beltran disagreed with congressional arguments that the new tax would actually increase government revenue.

The same House panel that passed the value-simplified tax last week is also looking into passing a simplified income tax return audit system.

That system would free taxpayers from audits or investigations by registering with the Bureau of Internal Revenue, but opposition leaders called the bill an amnesty for tax evaders.

“This is incredible,” House Minority Deputy Leader Danilo Suarez said. Christine F. Herrera, with Bloomberg