Taxpayer-friendly laws wipe out RVAT gains

Revenue gains from a landmark 2005 law that helped avert a fiscal crisis have been offset — at least on paper — by estimated losses arising from various tax cuts passed by Congress, Finance department data showed. Republic Act 9337 or the Reformed Value-Added Tax (RVAT) Law, among others, lifted the exemption of key sectors such as medical and legal services, power, and petroleum products and raised the VAT rate to 12 percent from 10 percent. RVAT gains, pegged at P76 billion last year and estimated at P77.5-P78.9 billion this year, have been exceeded by foregone revenues of as much as P81.9 billion yearly as a result of 10 taxpayer-friendly laws. These are the Income Tax Relief law, with an expected revenue loss of P26 billion; reduction of corporate income tax to 30 percent from 35 percent (P15-P20 billion); the National Grid Corp. franchise, which allowed the firm to pay a 3 percent franchise tax in lieu of other taxes (P9 billion); and the abolition of the documentary stamp tax (DST) on secondary trading of stocks (P1.4 billion). The government also failed to realize P800 million in revenues due to the income tax exemption and condonation of unpaid taxes of local water districts; tax perks given under the Tourism Act (P6 billion), Personal Equity and Retirement Account (P12 billion) and real estate investment trusts (P2.7 billion); the Home Development Mutual Fund or Pag-IBIG charter (P1 billion); and the law converting the Bataan economic zone to a freeport (P3 billion). The RVAT gains will be wiped out further if seven pending measures — foregone revenues from which may reach P42.39 billion — are enacted: • re-imposition of franchise tax on power distribution (P4-P10 billion); • exemption of hybrid vehicles from excise tax and VAT (P2.7 billion); • abolition of DST on migrant workers' remittances (P1 billion); • restructuring DST on life insurance and cutting the premium tax to 2 percent from 5 percent (P1.37 billion); • Cutting the National Government's share in royalties from indigenous energy sources to bring down electricity rates (P14.9 billion); • exemption from VAT of selected goods and services bought by senior citizens (P420 million); and • creation of special economic and freeport zones in Ilocos Sur, Cebu, Davao and Samal (P12 billion). Four of these measures — restoring the franchise tax on power distribution, exemption of hybrid vehicles from excise tax and VAT, abolition of DST on migrant workers' remittances, and the creation of economic zones and freeports in various provinces — are pending at the committee level of both the Senate and House of Representatives. The bill seeking to restructure the DST and cut the premium tax on life insurance is awaiting the President signature. On the other hand, the bill that seeks to cut the National Government's share in royalties from indigenous energy sources has been approved by the Senate and is pending at the House committee level. The VAT exemption on select goods and services bought by senior citizens, meanwhile, has been passed by the House and is pending approval by the Senate. In a phone interview on Tuesday, Finance Assistant Secretary Teresa F. Habitan cited the need to improve tax administration and pass laws that will replace the foregone revenues arising from taxpayer-friendly laws. "We need new measures that will generate revenues. We also have to work harder to improve collections," she said. Habitan warned that too many tax incentives would deplete the revenue base, resulting in a high deficit and huge debt. "A high debt would reduce the amount allotted to social services. We have to pay more to our creditors" she pointed out. Malacañang has expressed concern about the erosion of RVAT gains, but admitted that it could not interfere with Congress. "We are concerned. The Executive has done all it can in endorsing revenue measures. We also asked Congress to postpone the passage or reject the revenue-eroding bills. The ball is in the court of Congress. It's up to them," deputy presidential spokesman Gary B. Olivar said in a telephone interview. "I hope they prioritize the revenue-generating measures. There is room for more efficient tax administration, but it will not be enough if they [lawmakers] continue to pass revenue-eroding bills," he added. The Finance department has been pushing for a bill seeking to restructure the excise tax on alcohol and tobacco, the simplified net income taxation scheme, and the rationalization of fiscal incentives. None of these measures have been approved by Congress. The bill restructuring alcohol and tobacco taxes, which will bring P22 billion to state coffers, is languishing at a House committee. The fiscal incentive rationalization bill and simplified income taxation, which are expected to generate P10 billion and P5 billion, respectively, are pending at a Senate committee. Senage and House leaders were not immediately available for comment. Some lawmakers, however, admitted earlier that the chance of revenue-generating measures being passed by the 14th Congress before the May elections is slim.