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Philippines To Consider Simplified VAT

by Mary Swire,, Hong Kong

09 December 2010

The Committee on Ways and Means of the Philippines’ House of Representatives has approved a bill, which would impose a value-simplified tax (VAST), in place of the value-added tax (VAT).

Hermilando Mandanas, the Committee’s chairman and author of the bill, said its introduction had been motivated, amongst other things, by the need to increase tax collections through a more efficient means of maximizing government revenues, to improve people's attitude to taxation, and to provide a system that eliminates leakages and loopholes as far as possible.

He said that the problem with the existing VAT lies in its implementation and, consequently, its unpopularity. The VAST would be introduced to increase revenue without increasing taxes on consumers, by simplifying its administration and by reducing the possibility of interpretation by tax officials in the application of the tax, which leads to corruption and reduces tax collection efficiency.

In fact, the bill provides for a reduction of the current VAT tax rate by half, from the current 12% to 6%. It would also allow all the exemptions from VAT under the present tax to continue under the VAST.

It is, however, expected that the new tax would increase annual tax revenues by some PHP50bn (USD1.1bn). It was said that much of the additional revenue would be generated from the cancellation of the substantial cost deductions that companies are able to claim under the current VAT legislation.

The bill also contains a framework to allow for future reductions in the VAST rate after further simplifications to tax administration and/or reductions in other discretionary tax provisions.

Following the Committee’s approval, the VAST bill will now be put before the full House. It is hoped that the Department of Finance and the Bureau of Internal Revenue will support the proposal.

TAGS: tax | business | value added tax (VAT) | law | Philippines | legislation | tax rates | tax reform

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