World Bank lead economist Gonzalo Varela. (File photo)
MANILA – The World Bank on Wednesday recommended studying the country's value-added tax (VAT) exemptions as a way to enhance collection efficiency.
In a press briefing, World Bank lead economist Gonzalo Varela said the Philippines can increase tax collection through better tax administration and better design of broadening of the tax net.
"So one of the things that we see in the case of the Philippines is that for example, take VAT, there are a many exemptions that apply to VAT zero-rated sectors that introduce distortions in the system that allocate resources in a way that is not necessarily optimal, but also that reduce the capacity of the collector to collect taxes, given the tax rates," he said.
The Tax Code listed 29 transactions exempt from VAT.
These items are mostly social goods and services consumed by individuals such as agricultural and marine food products in their original state, education, health services, financial services, among others.
A 2018 study by the World Bank showed that forgone revenues from VAT exemptions and incentives could reach as high as PHP539 billion.
"So the more exemptions you have, then the less you're going to collect. So analyzing very carefully what is the rationale for those exemptions? What is the distributional impact of those exemptions? Are these exemptions benefiting the poor or the richer households and then making decisions on streamlining these exemptions, reducing these exemptions can be a way of increasing tax collection without having to increase tax rates," Varela said.
For this year, the government targets to collect PHP4.3 trillion in revenues.
The bulk of the tax revenues amounting to PHP3.05 trillion will be generated by the Bureau of Internal Revenue, while the Bureau of Customs is expected to collect close to PHP1 trillion. (PNA)
