VAT in the PHILIPPINES

-

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.

-✒ Othello Dalanon
Former BIR Director

Comments

Post a Comment

Popular posts from this blog

Had it not for Othello Dalanon's Expose of the Dunkin' Donuts Tax Anomaly, President Duterte would not have Learned about it

-
Image
Dunkin' Donuts Billion-Peso Tax Evasion Issue. Had it not for Othello Dalanon's expose of the Dunkin' Donuts tax anomaly, President Duterte wouldn't have learned about it. 🇵🇭 🔆Background Othello Dalanon, a certified public accountant, served the government for more than a quarter of a century with a humble beginning as a Janitor-Messenger who became an anti-corruption crusader in the Bureau of Internal Revenue (BIR) where he spent the great years of his life as a lowly revenue officer. He is the former BIR revenue officer who conducted the tax audit of the 2007 financial records of Golden Donuts, Inc. (GDI), the exclusive Philippine Franchisee of the global brand "DUNKIN' DONUTS" owned by the Rufino-Prieto clan of the Philippine Daily Inquirer (PDI), that culminated in the doughnut company's P1.56 billion deficiency tax liabilities which the then Commissioner of Internal Revenue Kim S. Jacinto-Henares intentionally failed to either coll...
Read more

About the Author

-
Image
Othello Estropigan Dalanon, a Certified Public Accountant, served the government for more than a quarter of a century with a humble beginning as a Janitor-Messenger who became an Anti-Corruption Crusader in the Bureau of Internal Revenue (BIR) where he spent the great years of his life as a lowly Tax Auditor, but in 2013, he resigned, sacrificed his career including the benefits he is supposed to receive for his long years of service in the government upon reaching his mandatory retirement age, risked his life including the safety of his family, just to protect the interest of the Filipino people in the P1.56 Billion tax liabilities of Golden Donuts, Inc. (GDI), the exclusive Philippine Franchisee of the global brand "Dunkin' Donuts", owned by the Rufino-Prieto family of the Philippine Daily Inquirer (PDI), which the then Commissioner of Internal Revenue Kim S. Jacinto-Henares intentionally failed to collect.  In 2017, he was appointed by...
Read more