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Philippines wants to abolish VAT to counter tax leakage

Philippines wants to abolish VAT to counter tax leakage

MANILA: The leader of the House of Representatives is keen on replacing the value-added tax (VAT) with the goods and services tax (GST) being implemented in a number of Asian countries to improve revenue collection.

Speaker Pantaleon D. Alvarez said the GST will increase the Bureau of Internal Revenue’s (BIR) VAT collection, which currently stands at 4.3 percent of GDP.

“My proposal, actually, is to remove the [current] VAT and change it with the GST that is currently being implemented in Singapore, Hong Kong and other countries,” Alvarez said in a recent radio interview.

The GST in Singapore and Hong Kong is the counterpart of the country’s VAT. However, the GST is a broad-based VAT levied on import of goods, supplies of goods and services.

Under the GST system all indirect taxes will be abolished and only GST would be levied. Alvarez said a GST system is needed to address tax leakages in the country.

“The VAT collection rate is at 4.3 percent. That’s very low. It did not even reach half of our 12-percent target. This happens because there are leakages in our VAT system.

Alvarez said the lower chamber will prioritize the passage of the Duterte administration Comprehensive Tax Reform Package (CTRP) when session resumes on May 2.

“President Duterte wants us to pass the tax package. And I asked for a meeting with Cabinet members here in the House to discuss it, so that, we can put it in the [2018 national] budget,” he said.

Instead of approving it last week, the House Committee on Ways and Means has created a technical working group (TWG) to further study the CTRP.

The tax-reform package seeks to exempt those earning P250,000 and below from personal income tax.

However, the tax proposal also includes the imposition of excise tax on fuel as compensatory measure for the foregone revenues due to the lowering of income tax. It also proposes a staggered increase of P6 per liter of diesel, kerosene, and LPG to be imposed within a three-year period. The CTRP is also imposing excise tax on vehicles.

It also includes the relaxation of the Bank Secrecy Act, taxing Philippine Charity Sweepstakes numbers’ game and lotto winnings.