Why DOF opposes VAT exemption for persons with disabilities


Posted at Dec 05 2014 11:56 AM | Updated as of Dec 05 2014 07:56 PM

MANILA, Philippines - The Department of Finance (DOF) is opposing a House measure seeking to exempt persons with disabilities (PWDs) from paying value-added tax (VAT) on certain goods and services.

The DOF issued the statement after House Bill 1039 or the Magna Carta for Persons with Disability was approved on third reading at the House of Representatives. The Senate has yet to approve a similar measure.

"The measure will expose government revenues to massive risks due to abuses and leakages. The long-standing international argument against VAT exemption is clear: proposals like this will result in tax administration problems and even compliance issues for the business sector. For the tax administrators, clarifying and ensuring only PWDs avail of the exemption, and not unscrupulous individuals seeking to abuse the system, will be highly difficult," the department said.

Since PWDs currently account for about 1.5% of the total Philippine population, the DOF estimated the proposed VAT exemption for PWDs would lead to a revenue loss of P1.12 billion. The revenue losses are expected to go up since the measure poses the challenge of monitoring whether the purchases would be for the exclusive use of PWDs.

"As the Philippines is the second least efficient in terms of VAT efficiency among the ASEAN 5, the country can ill afford to pass a VAT exemption measure that cannot be guaranteed to be availed solely by PWD citizens," the department noted.

Instead of granting VAT exemptions, Finance Undersecretary Jeremias N. Paul, Jr. said it would be better to grant "targeted subsidies" for PWDs.

"Granting targeted subsidies through the expenditure approach is more transparent, efficient, and effective in empowering PWDs. We re-affirm our commitment to PWDs by advising against a VAT exemption measure that would be hard to implement and prone to abuse. We will work with Congress to pass sensible and balanced proposals that better serve PWD interests," he said.

HB 1039, if passed into law, would require establishments to have separate accounting records for the purchases of goods and services by PWDs, in addition to that of senior citizens. This would lead to additional tax compliance burden for businesses.

"The DOF is fully convinced that the only way to empower the PWD sector is to provide such relief (targeted subsidies) while preserving our fiscal health—if only to generate more revenues to fund systematic programs and solutions to serve these sectors best," the department said.