Tax & Accounting Blog

Philippines: Arriving President Gets a Tax Reform

Blog, Indirect Tax, ONESOURCE, VAT Tax Rates, VAT-GST Management May 24, 2016

Rodrigo Duterte won the Philippines presidential election and will succeed Benigno Aquino as the president of the Philippines on 30 June 2016. The new president will get a tax reform package from the Department of Finance. The proposal of most interest is the increase in the VAT rate from 12% to 14% and this will be combined with reductions in income taxes.

Duterte who has been compared to US Presidential candidate Donald Trump has campaigned on bringing “Tax Reform” to the Philippines along with reducing corruption, crime and fixing government. However, not many details have been discussed on what exactly tax reform will be but the Department of Finance has left a parting shot for the departing President with its own proposals.  The President had not moved on any kinds of tax reforms during his administration.

The DOF proposal to increase the indirect taxes: VAT and Excise while decreasing the direct taxes is generally the preferred mechanism to generate more tax revenue globally. Malaysia’s GST introduction included a reduction in personal and corporate income taxes when the broader GST was introduced.

Tax reform is a popular topic in the Philippines, one long-running proposal was to convert the existing Value Added Tax in to the Value Simplified Tax. This would reduce the tax rate from 12% to 6%, eliminate all exemptions and remove the input/output credit mechanisms. Consumers would have seen reduction in their overall tax rate but businesses would have instead lost any of the credit mechanisms they had previously had.

Other proposals have included exempting senior citizens from having to pay VAT. In other countries usually embassies and charities don’t have to pay VAT, rarely is it a whole group of the population. Earlier this year, legislation had to be passed to restore the VAT exemption for Raw Sugar after the Bureau of Internal Revenue’s new guidelines had made it taxable. Based on FAO statistics, sugar cane was the most produced agricultural product in the country at over 31 million tons.