🇵🇭TAXES are the Lifeblood of the Nation. Without it, the Government will be Paralyzed for Lack of Motive Power to Run its Affairs.

🇵🇭#TAXES are the lifeblood of the nation.
Without it, the government will be paralyzed for lack of motive power to run its affairs.
However, taxation must be equitable (i.e. that burden of tax should fall on those better able to pay).

With the outbreak of the COVID-19 crisis currently plaguing our country, tax collection will surely drop.

Perhaps these proposals could help enhance and improve government's tax revenue and cash flows sans added burden to the Filipino people:

🎇Provide a mechanism for an efficient monitoring of VAT compliance of Real Estate Developers.

🎇Employ a devise for an efficient monitoring of VAT compliance of other taxpayers, whether or not engaged in real estate business but sell, transfer, or dispose of real properties subject to value-added tax.

🎇Collect advance VAT on sale or other disposition of real properties under the circumstances which warrant the imposition of VAT, in the event the fair market value of such real property being transferred is higher than the gross selling price stated in the document of transfer, as a pre-requisite for the filing of the application for electronic Certificate Authorizing Registration.

The advance VAT to be collected shall be the excess of the VAT based on such fair market value over the VAT based on the gross selling price. In case the fair market value is lower than the gross selling price, no advance VAT shall be collected.

🎇Provide certain limitations on Input VAT to be claimed as tax credit against Output VAT, such as:

▪️The Input VAT attributable to or in connection with the acquisition of capital goods should be capitalized and amortized over a reasonable period of time; and no longer be credited against Output VAT.

▪️The Input VAT attributable to or in connection with the purchase, lease, or use of property rights should be capitalized and amortized over a reasonable period of time; and no longer be credited against Output VAT.

▪️Fifty percent (50%) of the Input VAT attributable to Advertising designed to stimulate the future sale of merchandise or use of services should be capitalized and amortized over a reasonable period of time; and no longer be credited against Output VAT.
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🇵🇭#VAT IN THE PHILIPPINES

The VAT system in the Philippines took effect on 1Jan1988 by virtue of the then President Cory Aquino’s Executive Order (EO) No. 273, the law adopting the VAT as implemented by RR No. 05-87 at the rate of ten percent (10%) on all taxable transactions. The tax rate was increased to twelve percent (12%) starting 1Feb2006 by virtue of RA No. 9337 as implemented by RR No. 16-2005 as amended by RR No. 04-07.

VAT is an indirect tax and the amount of tax may be shifted to or passed on to the buyer, transferee, or lessee of goods, properties or services. It is a tax on consumption of goods, services or other dealings involving the same. It forms a significant portion of consumers expenses.

It is a “tax credit method” wherein the Input VAT paid or incurred by a VAT-registered entity is creditable against the Output VAT which it shifts to or passes on to another VAT-registered entity or buyer-end-user. In other words, Output VAT minus Input VAT.

Under the said system, the VAT-registered seller or transferor of goods, properties, or services merely acts as a collector or remitter of the tax actually paid by or shifted to the final consumers.

While it may be an effective tax collection method, its implementation is uncontrolled and unbounded, because it can be and actually have been abused by tricky persons, natural or juridical, simply by overstating purchases or expenses to overstate tax credit with the end view of evading remittance of correct amount of VAT.

Given the country’s impoverished citizens, the uncontrolled and unbounded implementation of the VAT system have become so onerous and inequitable to the Filipino people, because the entire burden of tax falls on them and not upon persons, firms or companies engaged in undertaking affairs for profit.

“The power of taxation is said to be in good exercise when it is equitable, i. e., if burden falls on those better able to pay”. However, the present system seemingly favors those business enterprises which are for profit, particularly the VAT-registered ones because they are able to reclaim the VAT that was shifted or passed on to them by the VAT-registered sellers or transferors of goods, properties, or services since they are entitled to claim the Input VAT as tax credit against Output VAT.

Even those who are Non-VAT-registered persons or entities but are engaged in profit oriented activities are not so burdened under the present tax scheme, because the VAT that is shifted to or passed on to them can be converted to form part of their cost and expenses which are deductible from their gross income, reduces taxable income and consequently lessens income tax liability.

Under the present VAT scheme, the entire burden of tax falls on the Filipino people (final consumers) and not upon persons or entities which are better able to pay.

The laws, rules and regulations could have provided certain limitations on Input VAT paid or incurred by a VAT-registered person that may be creditable against Output VAT, because in principle and in truth, all natural or juridical persons, whether or not engaged in business for profit, are end-users in the real sense of the word, and not only the Filipino people.

Hoping that our lawmakers will spare a little of their precious time to revisit our country’s VAT system to be able to find ways to help ease the Filipino people from the burden of tax without derailing government revenues.
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Sana makatulong ito.

✒ Othello Dalanon
Former BIR Director

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