By Aubrey Rose A. Inosante, Reporter
REMOVING value-added tax (VAT) exemptions for senior residents in addition to private education and healthcare may boost government revenue collections, but analysts warned this move is “socially harmful” and can drive up expenses for many Filipinos.
Bureau of Internal Revenue (BIR) Commissioner Charlito Martin R. Mendoza said the agency will leave it as much as Congress if it would heed the suggestion of the Organisation for Economic Co-operation and Development (OECD) to phase out tax exemptions for senior residents, private schools and personal hospitals.
“For those who reduce the exemptions, the gathering will increase. That’s the effect… It depends upon the wisdom of Congress. We leave that as much as them,” he told reporters on Feb. 13.
The OECD in a report last week said the Philippines should consider phasing out VAT for personal healthcare, education, and senior residents, so the federal government can optimize taxes and revenue collections.
The Philippines charges a 12% VAT on sales, leases, barter, and imports of products and services, the best in Southeast Asia.
Senior residents currently enjoy a 12% VAT exemption under the Expanded Senior Residents Act, while private education and healthcare providers also profit from tax breaks.
IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said removing these VAT exemptions will raise costs for families reliant on these tax perks amid weak public health services.
“Removing VAT exemptions for healthcare, education, and senior residents is regressive and can disproportionately burden lower- and middle-income households. It’s socially harmful in raising the fee of living for lower- and middle-class households counting on private schools, for families driven to personal healthcare resulting from weak public health system, and for elderly households with fixed incomes,” he told BusinessWorld in a Viber message last week.
Mr. Africa said this is able to also dampen household spending at a time when consumers are already grappling with high prices.
“Fiscal consolidation that relies on more regressive consumption taxes undermines inclusive growth quite than supporting it,” he said.
Mr. Africa called for progressive taxation on billionaires, high-income families, and huge corporations.
He also noted that the BIR should improve VAT administration and reduce leakages, to be able to avoid putting undue burdens on lower-income and middle-class families.
Eleanor L. Roque, a tax principal at P&A Grant Thornton, said ending these tax perks could drive up healthcare and education costs.
She noted VAT exemptions for senior residents allow them to make ends meet.
“For the seniors, we’d like to support them as much as we are able to as they should not have regular work anymore. In other countries, they’d have gotten a sufficient pension during their retirement. They don’t get that here,” Ms. Roque said in a Viber message on Feb. 13.
BMI Pharmaceuticals & Healthcare Analyst Ben Yau said removing VAT exemptions for personal healthcare would boost government revenues but risk driving up costs for Filipinos.
“While the introduction of VAT would increase costs and will affect the country’s competitiveness as a medical tourism destination, domestic demand for personal healthcare is prone to remain robust,” he said in an e-mailed statement on Feb. 15.
Private healthcare within the country is essentially accessed by middle‑ to upper‑income households, expatriates, and foreign patients, Mr. Yau said.
Many residents proceed to depend on private providers given gaps in the general public system, he said, noting that demand will persist at the same time as prices climb, with higher‑income patients absorbing the added costs.
“Lower income private users might be more sensitive to cost changes and will shift to the general public sector for some services or adjust use patterns, comparable to reducing frequency or choosing lower cost providers,” he said.
BMI projects that Philippine private health expenditure will expand at a 7.7% compounded annual growth rate between P823 billion in 2025 and P1.19 trillion in 2030.
Nonetheless, OECD economist Cyrille Schwellnus defended the Paris-based body’s suggestions, arguing that the tax breaks profit higher-income individuals quite than intended poor beneficiaries.
“For those who consider specifically the tax exemption for senior residents, the senior residents who devour most profit probably the most since you get a reduction on the shop on VAT,” he told BusinessWorld on the sidelines of the launch event last week.
Mr. Schwellnus said the Philippine government should shift to targeted money transfers for indigent senior residents, which is able to address fiscal consolidation and reduce inequality at the identical time.
“We predict these money transfers have to be based on a social registry. They have to be predictable,” he said.
At the identical time, BMI Country Risk Analyst Brandon Ong said the Philippine government will likely retain some VAT exemptions, which is able to slow fiscal consolidation efforts.
“Our view is that the federal government won’t fully phase out VAT exemptions and expect fiscal consolidation to stay slow,” he said in an e-mailed statement on Monday.
Mr. Ong also said the phasing out the VAT exemptions might be unpopular but is timely amid limited tax reform within the Philippines.
The administration pledged there might be no latest taxes until the tip of President Ferdinand R. Marcos, Jr.’ term in mid-2028.