THE GOVERNMENT will let the comprehensive tax reform proposals run their course first before studying the possibility of a lower value-added tax (VAT) rate, the Budget secretary said.
“I think we should see how things develop first. Let us allow tax reform to run its course up to package five. I think it’s not time to go back to 10%. It will happen only in the extreme case,” Secretary Benjamin E. Diokno in a briefing in Manila on Monday.
“You start with broadening the base first, everything as a rule… if you have a broad base, you can afford to have a lower tax rate,” Mr. Diokno said.
Senate President Vicente C. Sotto III proposed last week that VAT be lowered to 10% from the current 12%, if needed, to counteract rising commodity prices brought on by external factors as well as the increase in taxes arising from the Tax Reform for Acceleration and Inclusion (TRAIN) law.
Senator Ana Theresia Hontiveros-Baraquel also filed a bill in January to cut the VAT to 10% by 2019, and reduce it further to 8% by 2022.
Mr. Diokno said in general, VAT is harder to evade than income tax.
“Let’s put it this way, income tax can be evaded, but not VAT.”
The Department of Finance has said that it is open to lowering the VAT rate, as long as all VAT exemptions are removed.
Aside from raising taxes, TRAIN also removed some VAT exemptions and lowered personal income tax rates for the bottom 99% of salary workers, among others.
Mr. Diokno said that TRAIN accounted for about 0.4 percentage points to the May inflation reading of 4.6%. He also noted the “market panic” following pronouncements that the government had fallen short of its required buffer stock level for rice, leading sellers to raise their prices.
He said that given the month-on-month slowdown, inflation should moderate by the second half, and is confident that it will fall within the 2-4% target band by then.
“Average inflation is 4.1% after five months and you have seven months to go. If inflation falls in the remainder of the year we can still hit the 2-4% range for the entire year,” Mr. Diokno said.
“It’s deccelerating. The price of oil is going down, and when the [tariffication scheme] for rice is approved and imports arrive, rice prices will normalize. And with closer monitoring of prices, we will hit 2-4%. I am confident,” he added.
The portion of TRAIN implemented in early 2018 is only the first of up to five tax packages that the government hopes to introduce. Succeeding reform measures include the general and estate tax amnesty, corporate income tax cuts and rationalization of fiscal incentives, further hikes to tobacco and alcohol taxes, an overhaul of the mining sector’s fiscal regime, and reforms to property taxation and valuation as well as capital income and financial taxes. — Elijah Joseph C. Tubayan