Home > Op-ed | To bottom

Reasons why we are against raising the VAT from 10% to 12%

1. VAT is regressive and hits the poor the most.

VAT is regressive because it violates the basic principle of progressive taxation, that taxes should be based on the “ability to pay”.

Since VAT hits everyone equally, those with less income will pay proportionally more than those with higher income. A 12% VAT would mean an additional expense of P123.90 per month for each of the 8.4 million poor Filipino families who will collectively shoulder P12.54 billion in increased Value Added Tax.

2. The VAT rate increase will not solve the low VAT collections.

Inefficient VAT collection is the reason for the government’s failure to generate substantial revenues from the Value Added Tax (VAT). Billions of pesos are lost in annual VAT leakage. Leakage is due to such practices as excessive claims of VAT credit, non-declaration of sales, non-issuance of official receipts, etc. The average leakage from VAT is estimated at 29.8% annually. This resulted in government VAT losses of about P41.6 billion annually, or P208 billion from 1998 to 2002. Thus, the solution is not to increase the VAT but to improve inefficient tax collection.

3. A VAT rate hike will increase the burden on honest taxpayers.

Honest, tax-paying consumers will shoulder the burden of increased VAT rates while tax-evaders will get away scot-free. Low VAT collections are due to inefficiencies and exemptions. Gloria Macapagal-Arroyo (GMA) is resorting to the quick-fix solution of raising the VAT instead of going after tax-evaders, thereby punishing honest taxpayers.

4. VAT exemptions are overly generous to firms engaged in exports.

In 2003, government collected P135 Billion in VAT but gave out P195.5 Billion in exemptions to favored industries. VAT exemptions were granted mainly to exporters and foreign investors in the special economic zones such as BCEPZ, and big corporations in the investments priority list such as mining companies, independent power producers, oil companies, etc. Meanwhile, small consumers, professionals and businesses are not exempted from paying the VAT.

5. A 10% VAT is not low, compared to other Asian countries.

The International Monetary Fund considers the country’s current 10% VAT rate as “low”. This is true only when compared to VAT rates in Latin America (14%) and Europe (20%). But in Asia, the Philippines falls within the standard VAT rate.

The Philippines has the same rate as Cambodia, Indonesia and South Korea. VAT is much lower in Thailand (7%), Singapore (5%) and Japan (5%). A higher VAT rate does not necessarily translate to higher collections. The key is still collection efficiency, not higher rate.

For these reasons and many more, we strongly oppose the proposed VAT increase being pushed by lawmakers in Congress. VAT increase is an added burden on the poor and would only push us deeper in debt. No to regessive taxation! No to additional taxes! No to VAT increase! Uphold the rights and welfare of the broad masses of Filipino people!

Home > Op-ed | Back to top