Despite having the highest value-added tax (VAT) rate in Southeast Asia, the Philippines’ revenue haul from consumption levy remains the most inefficient in the region due to numerous exemptions, the Department of Finance (DOF). In a virtual briefing on Tuesday, May 30, Finance Secretary Benjamin E. Diokno said the government stands to collect up to P1.307 trillion in VAT revenues should the country’s tax system is not plagued with exemptions. But based on a 2018 World Bank study, which was cited by Diokno, the government collected P768 billion from VAT only because the numerous exemptions had resulted in foregone revenues of at least P539 billion. Diokno also cited another study by the Organisation for Economic Cooperation and Development, which revealed that the Philippines collected P723 billion on average from VAT between 2016 and 2020, or only 40 percent of the expected revenues. “So while the Philippines has the highest VAT rate compared to the other countries in this part of the world, our VAT collection is the most inefficient, only 40 percent. If it's perfect, it should be 100 percent, and that's because of a lot of exemptions,” the finance chief said. In Southeast Asia, Indonesia has a 0.50 VAT efficiency level with an 11 percent VAT rate, and Singapore's efficiency level is at 0.71 with an eight percent VAT rate. Vietnam, on the other hand, has a 0.70 efficiency level and an eight percent VAT rate, while Thailand has a 0.79 efficiency rate with a 7 percent VAT level. In comparison, the Philippines' VAT system has an efficiency level lower than each of its neighboring countries at 0.40, despite having the highest VAT rate in the region at 12 percent. Diokno said the “ideal” VAT exemptions are limited only to essential goods and services, such as food, shelter, healthcare services, education, and selected medicines. “Prior to the passage of the reforms, the Philippine tax code contains 56 lines of exemptions, of which 11 overlap with special laws, and 84 additional exemptions in special laws,” Diokno said. According to the Diokno, the biggest VAT leakage is in cooperatives, which enjoy exemptions. Meanwhile, Diokno defended the imposition of VAT on goods and services, citing its is “pro-poor” approach to taxation. Describing himself as the “father of VAT,” Diokno said VAT is levied on consumption, not on income, which is currently the global trend.