President Ferdinand Marcos Jr. ordered a continued assessment and improvement of the country’s tax system amid the low value-added tax (VAT) collection.
The President made the directive during the sectoral meeting in Malacañang where he was updated by the Department of Finance and the economic team on the comprehensive tax reform program or the Corporate Recovery and Tax Incentives for Enterprises (CREATE), the implementation of the VAT system as well policy trajectories and recommendations.
Finance Secretary Benjamin Diokno in a press conference said while the Philippines has the highest VAT rate in Southeast Asia at 12 percent, it only has 40 percent efficiency rate due to the multiple tax exemptions that the government has been granting.
He said the government had asked the International Monetary Fund (IMF) to conduct a study on how the Philippines would improve and broaden its tax base.
“Meaning, maybe (we can) find areas where we can recover (the loss from) too much exemptions… So the IMF study will tell us how do we recover,” he said.
He added that one example is the tax grants provided to some cooperatives, adding that “many do not pay the VAT because of the cooperatives”.
Diokno, however, favors giving incentives to export-oriented firms who compete globally over domestic market enterprises.
He said there is also a need to sustain the distinction between export and domestic markets to “preserve the integrity” of the country’s tax framework.
“The reason being that if you are an export-oriented firm, you are competing with the rest of the world and therefore they should not be put at a disadvantage. Whereas if you are locally-based, then you are competing with other local domestic industries and therefore you should not be given a lot of incentives,” he said.
Diokno also said that despite the low VAT collection, the government is keen on preserving and implementing the current tax system to “maintain fiscal discipline and to consolidate in 2028.”
“It’s not perfect, but we continue to review it — if there are some areas we can improve on it, we will improve on it,” he added.
Diokno said the current tax system is actually much better than what former President Rodrigo Duterte inherited from the Aquino government due to reforms done and laws passed under the previous administration.
He said that under the present system, the country is now more focused on implementing the consumer tax system than the income-tax base as it provides income tax relief to the majority of the tax-paying community while generating revenues by increasing the tax on lifestyle products and services consumed by the top 1 percent of wealthiest individuals.
