By Chino S. Leyco The Department of Finance (DOF) has called for the removal of VAT exemptions before any reduction of this 12 percent consumption tax rate is implemented to avoid adverse impact on revenue stream and jeopardize the government’s fiscal position. Finance Secretary Carlos G. Dominguez III warned the planned VAT reduction from 12 percent to 10 percent will negatively affect the Philippine economy if it will be done without any compensating measures. “That is something that we are willing to support but you know if you are not going to remove the exemptions, we are going to lose money and our projected expenditures will of course be affected,” Dominguez told reporters at the DOF headquarters. Dominguez explained the government should ensure first that its fiscal position will not be affected once the current VAT rate of 12 percent is lowered. The finance chief said last February that despite the Philippines being among highest in VAT in Asia, its revenues as a percentage of gross domestic product (GDP) is lagging behind compared with its neighbors. The finance chief attributed the inefficient VAT collection on several exemptions given by Congress. “As I said many times, the VAT rate here is 12 percent and we only collect 4.7 percent as a percentage of GDP. In Thailand, VAT is only 4.7 percent and they collect 4.7 percent,” Dominguez earlier said. “I mean if we can bring up our collection rate say to seven percent by eliminating exemptions, of course we are open to reducing the rate of the VAT,” he added. Dominguez had also said that “VAT has been used as a fiscal incentive which is really wrong. There is no other country in the world which has so many exemptions.” Senate President Vicente C. Sotto III said last week that they may include the reduction in VAT rate under the Duterte administration’s second comprehensive tax reform proposal (CTRP). Sotto explained the decrease in VAT is a possible countermeasure to accelerating inflation that had been blamed by critics on the Tax Reform for Acceleration and Inclusion (TRAIN) Act. Before Dominguez, Budget Secretary Benjamin E. Diokno already rejected the proposal to reduce the country’s consumption levy, citing the lawmakers should instead let the Duterte administration finish its tax reform measures before cutting down the VAT rate. Diokno said that reducing the 12-percent VAT should be the government’s last resort in combating the skyrocketing consumer prices. “No, I think we should see how things develop first, let’s finish the five packages,” Diokno told reporters when asked if now is the best time to reduce the VAT rate. “I think it’s not time to go back to 10 percent.” The budget chief said that lowering the VAT rate is for “extreme case” like when the global crisis struck in 2008. “During the time of GMA , many countries suspended the VAT, they reduced it by one or two percentage points but as soon as things normalized, they took it back,” Diokno said. Instead of lower VAT, Diokno suggested the government should broaden its tax base and review the current consumption tax exemptions. “You start with broadening the base first, everything as a rule,” Diokno said. “If you have a broad base you can afford to have a lower tax rate.” “I’m the author of VAT during the time of Cory . VAT is imposed in more than 90 percent of the countries in the world,” Diokno said. “It is a better tax system than the personal income tax system.’ But Diokno reiterated that TRAIN should not be blamed as the main culprit for higher inflation this year. The budget chief said the unexpected jump in global crude prices and the National Food Authority’s (NFA) controversial pronouncements about the country’s rice supply fuelled the five-year high inflation. “That is because of the incompetent people in the NFA who announced that we have no rice supply which resulted in market panic. The NFA did not listen to us that rice imports should be based on tariffs,” Diokno said. But the budget chief, who is also one of President Duterte’s economic managers, said that inflation is expected to slowdown in the coming months, adding that the rate of increase in consumer prices will settle between 2.0 percent and 4.0 percent in the second-semester. “Maybe it has not peaked yet but I am confident that we will hit upper bound of 2.0 percent to 4.0 percent. We will be below 4.0 percent the whole year,” Diokno said.