MANILA, Philippines (1st UPDATE) - Malacañang announced on Tuesday that President Gloria Macapagal-Arroyo has signed into law a measure exempting the country's estimated 4.6 million senior citizens from paying the expanded 12% value-added tax (VAT).
Deputy presidential spokesman Gary Olivar said Mrs. Arroyo signed the expanded version of the senior citizens act on Tuesday morning, before proceeding to Mindanao.
"We can assume that the president has fully considered the fiscal costs of the law in relation to its welfare benefits to our seniors, in deciding to sign it," Olivar said.
The law exempts elderly Filipinos from the 12% expanded value-added tax, allowing them to fully avail of the 20% senior citizens discount as promised under Republic Act 7432.
Malacañang had initially hinted that Mrs. Arroyo might sign the proposed law on Valentine's Day, but it was delayed after Malacañang's finance advisers warned her of a projected annual revenue loss of P1.3 billion.
The Department of Finance had appealed to Mrs. Arroyo not to sign it into law, saying the government would lose P1.68 billion in revenues with the implementation of the Expanded Senior Citizens Act of 2010.
The finance department noted that the exemption would complicate the administration and mechanism of the VAT.
"The Bureau of Internal Revenue would be faced with an extremely difficult task of ensuring that the VAT exemption is applied to senior citizens, and that the VAT on other sales is imposed and collected," it said.
The proposed exemption, the DOF added, would also likely be a source of leakage in the VAT system, especially because many goods and services are also consumed by the general population.
Apart from the leakage, the exemption would increase the costs for businesses as they will be required to put up a different invoicing system to account for purchase of senior citizens.
"The proposal may also set a precedent for other sectors to seek a similar exemption and entitlement, thus paving the way for increasingly bigger revenue foregone," the finance department said.
Last month, both the Senate and the House of Representatives approved the reconciled version of the Expanded Senior Citizens Act.
The exemption will apply to senior citizens' purchase of medicines and essential medical supplies, accessories and equipment; fees of attending physicians; and medical, dental fees and diagnostic and laboratory fees.
Deputy presidential spokesman for economic affairs Gary Olivar previously said that President Arroyo was worried about the impact of the law on government revenues.
The government badly needs to raise revenues to plug its budget deficit, which hit a record high of P293.2 billion in 2009.
This year, the budget gap is seen to reach nearly P300 billion. -- with a report from Ruby Tayag, radio dzMM