DBM Sec. Diokno says not yet time to lower value-added tax rates

The government will let the comprehensive tax reform proposals run their course first before studying the possibility of a lower value-added tax (VAT) rate, the Budget secretary said.

“I think we should see how things develop first. Let us allow tax reform to run its course up to package five. I think it’s not time to go back to 10%. It will happen only in the extreme case,” Secretary Benjamin E. Diokno in a briefing in Manila.

“You start with broadening the base first, everything as a rule… if you have a broad base, you can afford to have a lower tax rate,” Diokno said.

Senate President Vicente C. Sotto III proposed last week that VAT be lowered to 10% from the current 12%, if needed, to counteract rising commodity prices brought on by external factors as well as the increase in taxes arising from the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Senator Ana Theresia Hontiveros-Baraquel also filed a bill in January to cut the VAT to 10% by 2019, and reduce it further to 8% by 2022. Diokno said in general, VAT is harder to evade than income tax. “Let’s put it this way, income tax can be evaded, but not VAT.”

The Department of Finance has said that it is open to lowering the VAT rate, as long as all VAT exemptions are removed. Aside from raising taxes, TRAIN also removed some VAT exemptions and lowered personal income tax rates for the bottom 99% of salary workers, among others.