MANILA, Philippines - The Value Added Tax (VAT) has not been maximized in the Philippines as it continues to be plagued by a lot of exemptions and administrations problems, according to an expert from the International Tax and Investment Center (ITIC).
The VAT revenue productivity in the Philippines was the lowest among all ASEAN countries that implemented a VAT, according to Senior ITIC Advisor Sijbren Cnossen who presented results of his study at the Asia Pacific Tax Forum on October 4.
Only Malaysia and Myanmar had not implemented a VAT.
Cnossen said that VAT revenue productivity in the Philippines in terms of final consumption was only at 0.22%. In terms of Gross Domestic Product (GDP), it was only 0.18%.
"That's the ratio between the actual tax base, what you're taxing, and what you could tax. So you're taxing only 1/5 of what you can get. Now there are two reasons for that, that may be administration but I don't know why and it may be the number of exemptions," Cnossen said at the sidelines of the tax forum.
"It's very low in the Philippines. The VAT does not live up to its full potential," Cnossen said in his presentation. "[These figures] may not tell the true story but they are starting points for discussing the effectiveness of a VAT in a particular country."
Cnossen said the VAT is one of the taxes in the country that needs to be improved before the single market or the ASEAN Economic Community takes effect in 2015.
One of the biggest problems with the administration of the VAT was in the refunds. The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) both assured the public that a system has been put in place to address this.
At the sidelines of the tax forum, DOF Undersecretary Gil S. Beltran said the government has developed a system by which new VAT refunds are paid out in cash through the BIR.
BIR Commissioner Kim Jacinto-Henares agreed and said the government has already set aside funds for VAT refunds that needed to be paid through the national budget or the General Appropriation Act (GAA).
However, Beltran said the government is still refunding VAT payments made in previous years through installment basis. The DOF said there is still around P10 billion that needs to be refunded to various parties.
A few years ago, the National Economic Development Authority (Neda) admitted that the VAT refunds to Tokyo were the main reason why its aid program was temporarily suspended.
When the VAT was implemented in 2004, the Government of Japan was charged with VAT for undertaking various projects in the Philippines. The total amount of the VAT collected by the government from Tokyo amounted to P709.895 million for projects agreed in 2006.
The government is still in the process of refunding the Japanese government.
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