Lawmaker wants 12% VAT cut by half

by Alvin Elchico, ABS-CBN News

Posted at Jul 29 2011 07:18 PM | Updated as of Jul 30 2011 03:37 AM

MANILA, Philippines - A lawmaker has proposed to cut the current 12% value-added tax (VAT) by half to ease the burden on Filipino taxpayers.

Batangas Rep. Hermilando Mandanas is pushing for this in light of the Bureau of Internal Revenue's (BIR) pronouncement that it will impose the VAT on toll rates by mid-August or early September.

He says this can be achieved by eliminating the complicated VAT "input tax credit system," which he claims is prone to revenue leakage.

Mandanas wants to shift to the 6% value-added simplified tax or VAST, which has already passed the House committee he chairs. He said the measure will have twin benefits of increasing tax collection and decreasing the burden of taxpayers.

BIR Commissioner Kim Henares says on first look, Mandanas' proposal appears acceptable. But she notes in the end, the consumer will have to pay more than the VAT rate.

Henares explains that if, for example, the cost of raw materials for a certain product is P100, add 6% VAST and the cost becomes P106. The product then is sold to middle men or traders with another 6% VAST being imposed, bringing the product cost to P112.36. When the traders sell the product to end consumers, another 6% VAST is imposed, which means that the final price will now be P119.10.

Compared to the current VAT system where only the value added is charged with additional 12%, the end-price for the consumer will just be P115, Henares says.

In a statement, Mandanas reported that revenue losses in the VAT system already amounted to almost P60 billion from 2000 to 2007.

While Henares does not deny the tax leaks, she maintains that the current VAT regime is working.

Henares adds if all income earners pay the correct taxes, the 32% maximum income tax will also go down to ease the burden on consumers.

But she clarifies, the BIR will simply implement whatever tax system Congress will pass in the future.