THE Senate has voted down a proposed tax reform amendment by Sen. Panfilo M. Lacson seeking to limit zero-Value Added Tax (VAT) entitlements to direct exporters.

The Senators who rejected the amendment Thursday cited risks to some industries, including the Business Process Outsourcing (BPO) industry.

The Tax Reform for Acceleration and Inclusion (TRAIN) bill is undergoing an amendment period. Of the 18 senators present, 12 voted against Mr. Lacson’s proposal.

The amendment sought to lower the VAT rate to 10% from 12% and to reduce the 143 exempt categories to 65, including the zero-VAT privileges enjoyed by industries located in industrial zones controlled by the Philippine Economic Zone Authority (PEZA).

“My proposed amendments are premised on the sad reality that while the Philippines has the highest VAT rate at 12% among all ASEAN neighbors, we also have the most number of exemptions,” Mr. Lacson said, adding that “all these countries including Thailand with 35 exemptions, Vietnam (25), and Malaysia (14), their combined total will only be 111” compared to the Philippine total of 143 exemptions.

“Assuming that we do away with the exemptions, the government could collect P1.4 trillion from VAT alone,” Mr. Lacson said.

Sen. Juan Edgardo M. Angara, the sponsor of the TRAIN bill, said: “The country is not yet ready for this kind of amendment. I think in a year or two, we will be ready.”

“We are transitioning from a system where we are used to giving exemptions and slowly we are repealing those exemptions,” Mr. Angara added.

Mr. Angara also said that with the “current condition of the refund system, exporters will (be forced out of business).

Mr. Angara said the VAT refund process is a significant burden on the finances of companies applying for them, saying that at committee level he sought to prod the Bureau of Internal Revenue (BIR) “to reach a certain level of performance. They must be able to process VAT refunds in 90 days. They must ensure that all VAT refunds are paid.”

“We are also protecting the BPOs and the PEZA zone,” Mr. Angara said, adding, “The industries approached us to make a provision not to touch the zero rating on ecozones, because ecozones are a separate customs territory.”

Senator Ralph G. Recto, who backed Mr. Lacson’s proposal, said: “Zero-rated treatment (is reserved for) direct exporters of goods.”

The Senate also retained the VAT exemption of mass housing units worth up to P2 million for projects outside Metro Manila.

The original proposal of the Department of Finance (DOF) sought to remove the VAT exemption of both socialized housing priced at P450,000 and below, and of low-cost housing, as part of its move to broaden the VAT base.

The P2-million price ceiling for mass housing projects is in line with the policy direction of the Duterte administration to disperse economic growth and opportunities to areas outside of Metro Manila.

According to data from the Housing and Urban Development Coordinating Council (HUDCC), 5.91 million units out of the 6.58 million-unit backlog covers areas outside Metro Manila.

The Housing Industry Roadmap of the Philippines 2012-2030 estimates that 60% of the housing backlog is in the economic housing segment, priced between P450,000 and P1.7 million.

The Senate likewise retained the VAT exemption of senior citizens, persons with disabilities, and cooperatives, as well those of raw food and agricultural products, health and education. — Arjay L. Balinbin

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