Measure exempting docs, lawyers from VAT okayed

Congress’ bicameral conference committee has passed the proposed amendments to the expanded Value Added Tax (VAT) which would now revert to the old Gross Receipts Tax (GRT) structure.

The joint committee exempted financial transactions from the tax and also quietly exempted lawyers and doctors from paying VAT, a move that finance officials warned could spawn future lobbies for exemptions in other professional sectors.

Finance Secretary Jose Isidro Camacho said the Department of Finance (DOF) was relieved that the GRT was finally restored but he expressed disappointment that the bicameral committee also extended the exemption to lawyers.

Camacho said the DOF supported the exemption of medical practitioners from VAT but he said the privilege should not have been extended to lawyers or any non-medical personnel.

The proposal to exempt doctors from VAT was put forward by Sen. Ralph Recto, who said it was international practice to exempt medical practitioners from the burden in the hope of making medical services more affordable to the public.

"There is a universal sympathy for this policy because governments want medical service to be accessible and affordable," Camacho said.

However, Sen. Edgardo Angara also inserted another amendment, this time exempting lawyers from paying the VAT. Angara is himself a lawyer and founding partner of the ACRRA Law Offices.

"But there is no similar international practice that applies to lawyers," Camacho stressed.

The DOF had originally intended not to provide any VAT exemption to professionals. The finance chief pointed out that compensation income earners were paying a disproportionately large amount of taxes while professionals who earn more than double were paying significantly less.

VAT also expands the government’s tax base since it allows the Bureau of Internal Revenue to capture all taxable transactions, goods and services.

However, VAT on professionals came under heavy fire earlier this year, especially from the entertainment industry whose exemption lapsed in January.

On the other hand, the restoration of the GRT on financial transactions removed what the DOF called an administrative nightmare, had it been required by law to continue implementing the VAT on financial transactions.

Both the DOF and the banking sector have been lobbying jointly against the VAT on financial transactions, arguing that it would unduly increase the burden on small individual borrowers who would be unable to pass the tax on to their clients the way corporate borrowers do.