PH taps IMF to study possible expansion of tax base

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Metro Manila (CNN Philippines, May 30) — The current administration is looking to expand the country’s tax base amid “poor” value-added tax collection, Finance Secretary Benjamin Diokno said Tuesday.

During a Palace briefing, Diokno said the government has asked the International Monetary Fund (IMF) to conduct a study on how the Philippines can broaden its tax base.

“Maybe find areas where we can recover ‘yung too much exemptions,” the official said. “One exemption is the cooperatives.”

“The IMF study will tell us how do we recover kasi 0.4%, that’s really poor, poor performance,” he added.

According to Diokno, the Philippines had the highest VAT rate at 12% compared with other countries in the ASEAN region. However, VAT collection was the “most inefficient” because of a lot of exemptions.

He cited that from 2016 to 2020, the Philippines collected ₱723 billion from VAT—only 40% of the expected collection if all consumption were subjected to this sales tax.

Diokno stressed that VAT is considered the “best tax” in the world, with 90% of the countries implementing it.

“It is in our interest to improve the efficiency of the VAT,” he said.

In 2017, former Finance Undersecretary Karl Kendrick Chua, who also served as the NEDA chief, said the Philippines had been recording “big” VAT leakage due to the exemption of cooperatives.

“[T]he Cooperative Development Authority (CDA) cannot audit coops properly and distinguish sales to members and non-members. There are also many fake coops that take advantage of the system,” he said.

“Moreover, not all coops are poor, some can be very rich,” Chua added.

Chua said that the government could explore other ways to help the cooperatives, but exempting them from VAT as an incentive was “not the right way.”

‘Preserving’ PH’s tax system

Meanwhile, Diokno said that to maintain fiscal discipline and to consolidate in 2028, there is a need to “preserve the existing tax system.”

He also noted that the tax system inherited from former President Rodrigo Duterte was “much better” than the ones passed by former President Benigno Aquino III.

Diokno also said that this was discussed during his meeting with President Ferdinand Marcos Jr., who advised them to “continue to look into it.”

“We are studying it," Diokno said. "It’s not a perfect system so we will look for improvements. But our revenue system is doing well."