Banks say 10% VAT to adversely affect them

Commercial and thrift banks especially those with significant consumer banking services will be adversely affected by the imposition of the value-added tax (VAT) on financial institutions, sources from the banking industry said recently.

From a gross registered tax (GRT) of five percent of total transaction, banks now have to grapple with a 10-percent VAT on all transactions.

Commercial banks (KBs) have been expanding its consumer or retail banking services to cushion them from the impact of weak corporate borrowings due to a general drop in economic activity.

Thrift banks, in particular, rely from retail banking since they can not individually cope with the huge demands from corporate customers.

"Consumers will have to pay VAT three times to acquire and finance homes and cars or pay for fire and/or property insurance," a source from one commercial bank said.

This simply means, according to the source, of a higher borrowing and transaction cost which in turn could result in less borrowings.

Bankers also said there are certain costs related to the VAT, which they can not readily pass on to the borrowing or depositing public.

They also said that slapping VAT on each transaction would result in higher costs for the banks as this will require time-consuming and tedious computation of the VAT component on each transaction.

"It would require automation which takes at least six months to program and install," the bankers said. "There are also penalty risks associated with delayed and erroneous payment and reporting."

The complex and tedious efforts to cover each transaction would likewise result in "numerous disputes" between a bank and the Bureau of Internal Revenue (BIR) collector.

The disputes, they added, would result in more administrative appeals and judicial appeals and actions "which would prove costly and time consuming for the banks, the BIR and the courts."