PH eyes improving VAT system amid ‘poor’ efficiency: Diokno

Philippine economic managers are looking to improve the country’s value-added tax (VAT) after studies showed it has the lowest efficiency level in the region, Finance Secretary Benjamin Diokno on Tuesday.

The Philippines posted the lowest VAT efficiency ratio in the ASEAN region from 2016 to 2020 at 0.40 despite having the highest VAT rate in the region at 12 percent, based on the International Monetary Fund Tax Reform Database.

VAT efficiency was defined as the revenue obtained as a percentage of consumption or GDP, for each tax rate point, the Department of Finance said.

On average, the government collected P723 billion from VAT annually from 2016 to 2020, or only 40 percent of all expected VAT collection, Diokno said in a briefing.

“So while we the Philippines has the highest VAT rate compared to the other countries in this part of the world, collection is the most inefficient,” Diokno said.

Compared to the Philippines, Indonesia has a 0.50 VAT efficiency level with 11 percent VAT rate, Singapore’s efficiency level is at 0.71 while its VAT rate is just at 8 percent. Meanwhile, Vietnam has a 0.70 efficiency level and an 8 percent VAT rate and Thailand has a 0.79 efficiency rate with its 7 percent VAT level, DOF data showed.

The DOF also cited a 2018 World Bank study which revealed that the Philippines’ tax system is “plagued” with exemptions outside the tax code.

Prior to tax reforms, the Philippines have 56 lines of exemptions and an additional 84 exemptions under special laws, he added.

“We actually talked with the International Monetary Fund and we asked them to conduct a study on where we can improve on broadening the tax base meaning maybe find areas where we can recover from too much [many] exemptions,” Diokno said in a briefing.

“I say 0.40 that’s really poor performance, but you know the value-added tax is the best tax in the world. It’s I think being imposed in 90 percent of the countries in the world, so it is in our best interests to improve on the efficiency of the VAT,” he added.