DoF bucks move to grant tax perks

MANILA, Philippines - The Department of Finance has opposed populist proposals in Congress that seek to exempt from taxes utilities, calamity victims and senior citizens as this would further erode government revenues by P13.7 billion a year.

The House of Representatives has passed on third reading and recommended for Senate action House Bill No. 5210, which wants to change five sections of the Tax Code.

Substituting for 15 other separate bills, HB 5210 provides income tax exemption to local water districts and electric cooperatives, exemption from donor’s tax of donations to calamity victims and value-added tax exemption of purchases made by senior citizens and of electricity services.

In the Senate, the committee on ways and means is deliberating on Senate Bill No. 3152 sponsored by Sen. Panfilo Lacson, who wants to exempt water utilities from income tax.

According to the DOF, the proposed perk for local water districts is not attuned with the policy of self-sufficiency and financial independence for the government corporate sector and might set a bad precedent.

“It is not aligned with the overall objectives of government to safeguard revenues and strengthen its fiscal position,” it added, saying that this would result in foregone revenues of P15 million yearly.

The DOF said the proposal to exempt electric cooperatives from corporate income tax was also deemed unnecessary because the Cooperative Code of 2008 already provides that all cooperatives, including electric cooperatives, are exempted from income tax and other taxes.

Even then, such exemption would cost the government P166 million a year in earnings.

Similarly, the proposal to include donations or contributions to victims of natural calamities as a deductible expense from gross income of the donor is already in the Tax Code.

The proposal to exempt senior citizens from VAT, on the other hand, is “inconsistent with the policy of a broad-based VAT with limited exemptions.”

Aside from posing “administrative difficulties” for the Bureau of Internal Revenue, VAT exemptions for senior people would reduce government revenues by P130 million a year for medicine purchases alone.

Finally, the DOF said more affluent households that use more electricity, instead of the poor, would benefit from the proposal to remove VAT on power.

“The poor whose consumption is less than 100 kilowatt-hours [a month] would have very little benefits and is already subsidized through the lifeline rates,” it said.

“Likewise, the proposed VAT exemption of lifeline subsidy charges and system loss charge goes against the principle of limiting exemption from VAT,” it added. “This could be an avenue for tax leakages and abuses.”

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