MANILA, Philippines—The Department of Finance has rejected proposals to exempt electricity from the value-added tax, saying the proposed tax break would deny the government P12 billion a year in revenue and will mainly benefit high-income earners.
Instead of lifting VAT on electricity, the DOF said the government may instead allocate portions of the government’s VAT collection for pro-poor programs, such as additional subsidy to the country’s poorest households.
Proposals to lift VAT on electricity are being revived in Congress as some legislators said such a move would ease the burden on electricity consumers, especially the poor.
However, the DOF said in a position paper that withdrawing the VAT on power would benefit the rich more than the poor, because high-income earners consume the most electricity, and that poor households allocate just a small portion of their income for power.
In its study, the DOF said Filipino households earning a maximum of P80,000 a year account for only 6.6 percent of total electricity consumption of households in the country.
On the other hand, households earning at least P80,000 a year account for 93.4 percent of total electricity consumption of Filipino families.
“The DOF has always supported proposals to help the most needy sectors of the economy, especially during challenging times. However, based on our studies, we learned that suspending VAT on power may not benefit the sectors that really need government assistance,” the DOF said in the paper submitted to both houses of Congress.
The DOF said it would be wiser for the government to be allowed to continue collecting VAT on power and then make it use a portion of VAT collection to expand the coverage of the conditional cash transfer (CCT) program.
Under the program, the government grants a cash allowance to the poorest households.
Recipients are required to send children to school and mothers should regularly visit public health centers.
The DOF said expanding the CCT would directly benefit the poor.
Moreover, the DOF said VAT on electricity is a common form of tax in many countries around the world.
It added that the 12-percent VAT in the Philippines is actually lower than in some countries.
VAT on power has the following rates in other countries: 15 percent in Germany, 20 percent in Austria, 21 percent in Belgium, 20.6 percent in France, 18 percent in Greece and 17.5 percent in the Netherlands.
Instead of lifting VAT on electricity, the DOF said the government may instead allocate portions of the government’s VAT collection for pro-poor programs, such as additional subsidy to the country’s poorest households.
Proposals to lift VAT on electricity are being revived in Congress as some legislators said such a move would ease the burden on electricity consumers, especially the poor.
However, the DOF said in a position paper that withdrawing the VAT on power would benefit the rich more than the poor, because high-income earners consume the most electricity, and that poor households allocate just a small portion of their income for power.
In its study, the DOF said Filipino households earning a maximum of P80,000 a year account for only 6.6 percent of total electricity consumption of households in the country.
On the other hand, households earning at least P80,000 a year account for 93.4 percent of total electricity consumption of Filipino families.
“The DOF has always supported proposals to help the most needy sectors of the economy, especially during challenging times. However, based on our studies, we learned that suspending VAT on power may not benefit the sectors that really need government assistance,” the DOF said in the paper submitted to both houses of Congress.
The DOF said it would be wiser for the government to be allowed to continue collecting VAT on power and then make it use a portion of VAT collection to expand the coverage of the conditional cash transfer (CCT) program.
Under the program, the government grants a cash allowance to the poorest households.
Recipients are required to send children to school and mothers should regularly visit public health centers.
The DOF said expanding the CCT would directly benefit the poor.
Moreover, the DOF said VAT on electricity is a common form of tax in many countries around the world.
It added that the 12-percent VAT in the Philippines is actually lower than in some countries.
VAT on power has the following rates in other countries: 15 percent in Germany, 20 percent in Austria, 21 percent in Belgium, 20.6 percent in France, 18 percent in Greece and 17.5 percent in the Netherlands.
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