e vat primer

7/25/2019 E VAT Primer

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1. WHAT IS VALUE-ADDED TAX?

A. A BRIEF EXPLANATION OF THE EVAT

2. IS THIS A NEW TAX?

1. VAT is a consumption tax imposedon the sale or importation of goods

and services.

2.No. Most goods and services arealready subject to VAT. But we still

need the reforms in the VAT

system (RA 9337) to increase

government revenues.


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WHAT ARE THE SALIENT FEATURES OF

THE RA 9337?

Starting February 2006, the President shallincrease the VAT by 2% (from 10% - 12%).

The following goods and services are nowsubject to VAT:

Petroleum products and other indigenousfuels

Power and electric cooperatives Services rendered by doctors Services rendered by lawyers Domestic carriage of passengers by air

and sea Non-food agricultural products Works of art, literary works, musical

composition


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B. THE NEED TO INCREASE THE VAT RATE

WHY DO WE NEEDRA 9337?

We need to increase our taxcollection to sustain and increasegovernments delivery of basicservices.

Our current fiscal condition requiresthat immediate attention be given to

fiscal reform: In 2004, debt service(principal and interest payments)was equivalent to 86.1% ofgovernment revenues. Interestpayment alone was equivalent to37.4% of government revenues.

Infrastructure and other capitalexpenditures were only 10.87% ofgovernment expenditures for thesame year.


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WHY SHOULD THE VAT

RATE BE INCREASED

FROM 10% TO 12%?

This is a part of a bigger effort to address

our countrys budget deficit. The EVAT

seeks to sustain our commitment to pay our

foreign debt obligations without sacrificing

governments delivery of basic services.

If we increase the VAT rate from 10% to

12% in 2006, we can raise as much asP35.12 billion more. This is expected to

translate to the strengthening of the Peso-

Dollar exchange rate and better interest

rates arising from improved investor

perception of the Philippines.


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C. THE EVAT AND THE FILIPINO CONSUMER

IS VAT ANTI-POOR?

No.The VAT system

recognizes the needs of thepoor and exempts basic

commodities and socially

sensitive products.


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Among these VAT-exempt commodities

are:

Agricultural and marine products in their

original state such as vegetables, meat,

fish, fruits, eggs and rice

Lease of residential houses not exceeding

P10,000 monthly

Sale of low-cost house and lot not

exceeding P2.5 million

Educational services rendered by both

public and private educational institutions

Books, newspapers and magazines

Sales of persons and establishments

earning not more than P1.5 million annually,

which could include sari-sari stores,

carinderiasand street vendors


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WILL THE POOR BE

ABLE TO AVAIL OF THE

SERVICES OF DOCTORS

AND LAWYERS ONCE

THE EVAT IS IMPOSED?

Yes. The EVAT should not affect the poorersegment of society since the servicesrendered by doctors in government (public)

hospitals, as well as the services of lawyersfrom the Public Attorneys Office, will remainfree.Also, those doctors and lawyers in theprovinces who do not earn more than P1.5million annually would be VAT-exempt.


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Since VAT is a consumption tax, its burden fallsheavier on those who consume more VATable

goods and services. The less one consumes,the less VAT he pays.

Most goods consumed by lower incomefamilies are VAT- exempt.

Based on the spending profiles of Filipino

families across income classes, thosefamilies spending not more than P60,000annually spend only 0.2% of theirexpenditures on taxes (VAT, excise andother taxes). This is largely because oftheir purchase of VAT- exempt goods (suchas food stuffs consumed at home whichconstitute more than 60% of theirpurchases.)

On the other extreme, those familiesspending more than P250,000 annually

spend at least 4.10% of their expenditureson taxes, largely because they consumemore VATable goods and services.

WHO WILL BE MOST

AFFECTED BY

THE EVAT?


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No.RA 9337 introduces a burden-sharing

scheme among different sectors of society

to address the countrys financial problems.

Due to this burden-sharing scheme, the

corporate income tax rate was increasedto 35%, and limitations on input VAT crediting

(the 70% cap on input VAT crediting and 5-

year crediting of input VAT on capital goods),

among others, were put in place.

WILL CONSUMERS

BEAR THE WHOLE

BURDEN OF RA 9337?


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WHAT MEASURES MITIGATE THE IMPACT

OF RA 9337?

Reduction of excise tax on gasoline,

diesel, kerosene and bunker fuel

Removal of franchise tax on domestic

airlines and common carriers tax on

domestic shipping

Increase in presumptive input VAT of agro-processors from 1.5% to 4%

Increase the VAT marginal threshold from

P550,000 to P1.5 million per year

Rental threshold from P8,000/mo. to

P10,000/mo.

Real property threshold from P1 million toP2.5 million


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Yes, but it will be very slight.

To cushion the impact of imposing VAT on

petroleum products, the VAT bill will put inplace a reduction of excise tax on

kerosene, diesel and bunker fuel oil so that

what would otherwise result to a 10%

increase in pump prices of these products

would be minimized.

WILL PUMP PRICES

OF FUEL INCREASE

DUE TO THE EVAT?

D. EVAT AND THE MAJOR BUSINESSES


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Below is a table showing the increase in theVAT on these products.

The VAT bill eliminated the franchise tax on

power distribution utilities so that the increasein power rates is less than 10%. This willtemper the effects of imposing VAT on power.

The Department of Energy submitted a schemethat proposes a no-power rate increase for a

Meralco residential customer who consumesnot more than 200 kwh per month (lifetimecustomers.)

WHAT IS THE IMPACT

OF VAT ON POWERRATES?

Est. Pump

Price* as of Mitigation New Final PricePetroleum 11/01/05 Pump 10% Pump Increase %Product (in Peso/Liter) Excise Tariff** Price VAT Price (in Peso/Liter) Increase

Unleaded 35.45 0.00 (0.52) 34.93 3.49 38.42 2.37 6.6%Regular 33.97 (0.45) (0.46) 33.06 3.31 36.37 1.80 5.2%Diesel 32.35 (1.63) (0.57) 30.15 3.02 33.17 0.22 0.7%Kerosene 32.91 (0.60) (0.57) 31.74 3.17 34.91 1.40 4.2%Bunker 21.38 (0.30) (0.35) 20.73 2.07 22.80 0.82 3.7%LPG 458.00 0.00 10.03 447.97 44.80 492.77 22.77 4.8%

(per cylinder)

* With ROLLBACK of P0.60/Ltr. on all products except for LPG, with ROLLBACK of P1.00/kg or P11.00/cyl.

** Based on October 1-20, 2005 MOPS/CP+. Pump prices may vary based on location, company andother factors.


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The scheme shows that the more a clientconsumes power, the more VAT he will pay.

WILL THE VAT IMPOSITION ONPETROLEUM PRODUCTS AFFECT THEPRICES OF SUPPOSEDLY EVAT-FREEBASIC COMMODITIES?

Yes,but it will be minimal. It will be less than1% at the most and will barely affect the dailybudget of regular customers like us.

Price with impact Percentage

Commodity Price per kilo of EVAT (P/kilo) Increase

Rice P 20.76 P 20.77 0.05%

Corn 10.60 10.60 0.03%

Milk Fish 83.01 83.05 0.04%

Tilapia 67.93 68.04 0.016%

Cabbage 24.01 24.01 0.00%

Eggplant 43.37 43.40 0.05%

Chicken 97.33 97.41 0.09%

Pork 141.67 141.94 0.19%


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WILL THE IMPOSITION OF EVAT ON BOTH

PETROLEUM PRODUCTS AND

ELECTRICAL SERVICES HAVE ANY EFFECTON THE PRICES OF COMMODITIES THAT

ALREADY HAVE VAT?

Yes,but it will be minimal.

To further minimize the effect of VAT onsardines, milk, noodles, sugar and cooking oil,

the VAT system allows manufacturers of these

products to credit against their output VAT a

presumptive input VAT equivalent to 4% of the

value of their purchases of primary agricultural

products used in the production of thesegoods.


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E. THE PURPOSE OF THE EVAT

HOW WILL THE INCREMENTAL VATCOLLECTION BE USED?

The new VAT law addresses the delivery ofbasic services by earmarking the equivalent of20% of the incremental VAT collection for the

following purposes:

20% of Incremental VATSector

Collection*

Public Elementary and Secondary Education 6%

Health Insurance Premiums 4%

Environmental Conservation 6%

Agricultural Modernization 4%

TOTAL 20%

* For illustration purposes only.

Sector 2006 Physical Units*

Public Elementary and 521 single single-story bldgs w/5 classrooms

Secondary Education

Health Insurance Premiums 3.1 M indigents to be newly covered

Environmental Conservation 9,190 hectares for reforestation

Agricultural Modernization 1,012 kms of farm-to-market roads

* Funds will be available to the LGUs after three years in accordance with the LocalGovernment Code.


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In concrete terms, such amounts are roughly

equivalent to the following:

2006 2007 2008 2009 2010

Portion of incremental VAT

collection that will go to

investments in social 30% 35% 40% 45% 50%

services and government

capital expenditure


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Operation RATE (Run After Tax Evaders) waslaunched to prosecute tax evaders, whileOperation RATS (Run After The Smugglers)was launched to prosecute smugglers.

RIPS (Revenue Integrity Protection Service)was also launched to prosecute corruptrevenue officers and employees.

Our cooperation is important to ensure thatthe taxes we pay go to the greater good of

our country. One way is to ask for receiptsevery time we purchase VATable goods andservices.

F. THE EVAT AND THE FIGHT AGAINST

CORRUPTION

WHAT IS THE

GOVERNMENT DOING TO

ADDRESS CORRUPTION

AND TAX EVASION?


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WHY CANT THE GOVERNMENT SIMPLY

IMPROVE ITS TAX COLLECTING SCHEMESO THERE WONT BE ANY NEED FOR

ADDITIONAL VAT?

The institutionalization of an efficient taxcollection system is one of the goals of the

DOF. This initiative is expected to plug taxleakages. These efforts and the reinforcementof remedial measures, however, may takesome time before it reaches full revenuepotential. For example, the investigation,

prosecution and dismissal of undesirablegovernment employees are circumscribed bythe procedural and substantive due processrequirements of the Constitution and our laws.At present, however, there is a need tomanage the budget deficit. The VAT reform

measures are designed to address this urgentneed.


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WHICH AGENCIES CAN CONSUMERS ANDTAX PAYERS CALL FOR QUESTIONS

ABOUT PRICE INCREASES DUE TO VATOR GENERAL QUERIES ON RA 9337?

DOE Consumer Welfare and PromotionsOffice Hotline No. 840-2267.Complaints should be directed to

Retail Marketing Division, Oil IndustryManagement Bureau.For LPG, call 840-2130.For liquid fuels, call 840-5669.

DTI To report abnormal or drastic increase

in prices of goods attributed to VAT,call 751-3330.

DOF Queries on VAT, call 524-0607.

BIR Queries on VAT and other BIR-relatedconcerns, call 981-8888. You may alsovisit www.vatreform.gov.phfor moreinformation on RA 9337.

DA For questions on VAT and agricultural

products, call 920-9178, 920-2216,371-2050.


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