Teves urges next administration to raise VAT to 15 percent

MANILA, Philippines - Finance Secretary Margarito Teves advised recently the next administration to help fix the country’s fragile fiscal position by raising the value added tax (VAT) to 15 percent from the current rate of 12 percent.

Teves said the increase in VAT should come with a corresponding decrease in income tax to help ease the burden on taxpayers.

“I would try to suggest perhaps that the next administration move to greater reliance on consumption tax rather than income tax. I would ask them to consider the suggestion of most economists of increasing the VAT but lowering the income tax,” Teves said in a recent interview.

Teves said higher VAT would be among his major recommendations to the next administration, which will come in by June or after the May 10 elections.

The government had raised the VAT in 2005, through the Reformed Value Added Tax Law to 12 percent from 10 percent. The same law lifted exemptions on oil and petroleum products despite stiff opposition from consumers and cause-oriented groups.

The government raised P121.14 billion from the RVAT law in 2008, or P32.21 billion higher than the P88.93 billion collected in 2007.

He also urged the next administration to work with Congress and push the three major revenue measures the finance department has been lobbying for since last year.

These are the measures that seek to raise taxes on alcohol and cigarettes, rationalize fiscal incentives and simplify the country’s net income taxation scheme. The Finance department has been lobbying Congress to pass the three measures that remain pending in Congress.

“The next administration can have a menu of options (for raising revenues). What is important is that the government needs to recover about P60 billion from revenue-eroding measures,” Teves said.

On the other hand, the so-called revenue-eroding measures approved by Congress include the bill seeking the creation of special economic zones in Bataan, Ilocos Sur, Cebu, Davao and Samal (revenue loss of P15 billion); the bill reducing the national government’s share from royalties from indigenous energy sources to effect a reduction in electricity rates (revenue loss of P14.9 billion); the bill seeking to re-impose franchise tax on power distribution (revenue loss of P7.1 billion) and the bill seeking to exempt from income and other taxes the so-called Real Estate Investment Trust (P5.3 billion).

Other “negative revenue measures” include the proposal to exempt hybrid vehicles from excise tax and VAT which is expected to translate to losses of P2.7 billion, the abolition of premium tax on life insurance policies which has an estimated revenue loss of P1.8 billion and the abolition of documentary stamp tax (DST) on dollar remittances from overseas Filipinos which has a projected loss of P1 billion.

The proposal to provide incentives to the Home Development Mutual Fund or Pag-IBIG Fund is expected to translate to losses of P900 million while the abolition of DST on life insurance policies is expected to translate to revenue losses of P800 million.