Philippine VAT to be Increased, from 12% to 15%; Cut Corporate and Income Tax Rates

Department of Finance Secretary Margarito Teves whose term finishes on June 30, 2010 suggested that the incoming administration should increase value-added tax (VAT) rate from 12% to 15% and cut other taxes such as the corporate tax and income taxes and approve pending reforms to strengthen the revenue collection and the budget position.

According to Finance Undersecretary Gil Beltran, the ratio of tax collection to the economy’s overall output was only 12.6% which is below the 16% average among South East Asian Nations (Asean).

Some other propositions include lifting redundant duty-free privileges enjoyed by some businesses and imposing a much higher excise tax on cigarettes and alcohol. Finance Secretary Margarito Teves also urge the incoming administration to pursue privatization of government assets.

The budget deficit last year was PHP 199 billion and is equivalent to 3.9% of GDP. But if the next administration will implement the proposal; the reforms on approving bills to rationalize fiscal incentives, restructure excise taxes on tobacco and alcohol products and simplifying net income taxation and corporate taxation would generate PHP 33 billion in the first year and if handled efficiently it can have a positive effect to the nation’s economy. The government budget deficit would decrease to 4.4% of GDP next year from the expected 3.6% this year.

The irony is President Benigno Aquino III firmly said that his administration would improve the fiscal situation of the country by collecting taxes rather than increasing tax rates.