Debt to GDP 2019

Germany 59.81%

Canada 83.81%

JAPAN 234.18%

Singapore 112%

Malaysia 50.7%

Philippines 51.68%
Value-added Tax

Milwida Guevara
 Why did we shift to VAT
• Replaced 75 ++ indirect taxes-manufacturers’
sales tax, retail sales tax, turnover tax,
compensating tax, contractor’s tax, etc.
• Prevents cascading taxes or a tax on tax
• Prevents distortion-efficient-does not affect
resource and product choice
• Establishes Audit trail
 The VAT is a tax on consumption. It is an efficient tax because
it is based on the value-added in the production of goods and
avoids cascading of taxes.

Manufacturer Wholesaler Retailer

Purchases 100 350 850
Input VAT 10 35 85

Sales 350 850 1100

Output VAT 35 85 110

Output VAT 35 85 110 230

Less Input VAT 10 35 85 130
VAT 25 50 25 100
Value-added 250 500 250 1000

Tax based on gross receipts = P230

 Nature of the VAT
• Territorial score of the VAT
Destination principle-goods consumed in a
country are taxed. Exports are not taxed;
imports are.
Origin principle- goods that are produced in
the country are taxed. Exports are taxed;
imports are not taxed.
 Tax Base –VAT Coverage
• VAT should be broad-based—all goods and services sold by
a trader in the course of his/her trade or business
-Level playing field; prevent distortions in prices and
resource allocation
- Horizontal equity
- Prevents cascading of taxes-a trader that uses an exempt
good will not be able to deduct the VAT that was paid on
some parts of the inputs He will have to pass on the VAT
through the price .
e.g. goods obtained from a small trader

- completes an audit trail

 Exemptions from the VAT
• Goods consumed by the poor- unprocessed goods,
health, education
• Small traders (?)- annual sales of P3 million (but
subject to 3% on gross)
• Very small traders-Gross sales of less than P300,000
• Financial services
• International commitments and international carriers
• Monthly rental of P15,000 and below
• Senior Citizens and PWD
• Medicine for diabetes, high cholesterol, hypertension
 Uniform or Multiple Rates
• 50% on luxury goods
• 30% on ordinary articles
• 20% on semi-essential
• 10% on essential articles
• Who determines essentiality?
• Influences choices
VAT Rates
• Started with 10%; raised to 12% by GMA
•0% for exports- VAT paid on inputs will be refunded
 Who pays the VAT?

40
34.16
30
23.44
20 19.47
10 7.6 6.5 4.26
0 1.27 1.86 1.45

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% Distribution of VAT Revenues