DoF rejects VAT exemption on socialized-housing inputs

By Elijah Joseph C. Tubayan Posted on March 02, 2017 http://www.bworldonline.com/content.php?section=Economy&title=DoF-rejects-VAT-exemption-on-socialized-housing-inputs&id=141549 THE Department of Finance (DoF) wants a direct subsidy instead of tax exemptions for building materials used in socialized housing projects, citing the potential for massive leakages from the current “imperfect” tax system. Senate Bill 3776, introduced by Sen. Maria Lourdes Nancy S. Binay, aims to lower the cost of socialized housing through exemptions from value-added tax (VAT) on construction materials. “By eliminating Value-Added Taxes imposed on construction materials including lease of equipment for socialized housing as well as housing projects for disaster victims; it is hoped that we are able to contribute to this objective of making available housing for all,” said Ms. Binay in the bill’s explanatory note. However, Finance Undersecretary Karl Kendrick T. Chua said that the proposal is not the most viable option in easing housing access for the poor. “We recognize the need to provide housing for the poor and the vulnerable… but we do not think the VAT system and exemptions provided to housing is the way to go, because we are concerned about the [leakages],” said Mr. Chua He added that it is “very difficult” to conduct a proper tax audit on the VAT exemption. According to Mr. Chua, the government only collects a third of the 12% VAT. Mr. Chua said that the value added tax (VAT) system needs to be simplified to be able to conduct proper audits and avoid leakages, while directly transferring incentives for socialized housing through budget allocations. “The policy recommendation we have is to simplify the VAT system, and to use the budget side precisely to help the poor and vulnerable and we will commit to work with the housing agencies to provide suitable subsidies to directly target those instead of using the VAT system, [because] it’s really complicated,” he said. The DoF is targeting an expansion of the VAT base by removing some exemptions outside food and health, through the first package of the tax reform program currently being deliberated in Congress. Low-income households will however be cushioned from this by the adoption of a higher VAT threshold of P3 million from the P1.9 million on the gross sales of small-scale businesses. It also aims to limit the VAT zero-rating to those direct exporters who actually ship the goods outside the country. The House Ways and Means committee expects to furnish a committee report of the tax reform program — or the Tax Reform for Acceleration and Inclusion — before the March 17 adjournment of session.