The effective value-added tax (VAT) tax rate in 2021 was significantly lower than the posted rate of 12%, reflecting tax avoidance strategies provided by tax advisers, said Finance Secretary Carlos G. Dominguez III.
He said in a statement on Thursday that reduced tax revenues had prompted the government to borrow more to fund its response to the pandemic.
He was addressing his remarks to the Fiscal Management Association of the Philippines, and called on them to behave in a more “patriotic” manner, according to the statement.
He said the effective VAT rate last year was 5%.
Tax evasion is legal, while tax evasion is not. Avoidance uses various techniques to lower tax bills, such as investing in tax-exempt instruments or structuring deals to take advantage of tax havens.
Before the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act came into force last year, the effective corporate tax rate was 9%, compared to a posted rate of 30%.
The discrepancies between the rates were the result of advice given by tax professionals to their clients, he said.
“If the government could have collected all the taxes due, we would have had more funds to cover our economic investments, debt service and COVID-19 response expenses,” he said.
“We would have borrowed less. The government would have been better able to invest in building the prosperous future our people deserve.
Government revenue in 2021 increased by 9%, he said. In 2020, government revenue declined due to the economic downturn caused by the coronavirus disease 2019 (COVID-19) pandemic.
The government stepped up borrowing to fund its response to the pandemic, which included the purchase of vaccines.
At the end of 2021, the government had 11.73 trillion pesos in outstanding debt, up 19.7%.
As of January 14, the Ministry of Finance has raised approximately $25.8 billion through loans and grants for the government’s response to COVID-19 from multilateral lenders, development partners and following the issuance global bonds denominated in foreign currencies.
Dominguez said tax advice “is probably the most lucrative side of your profession. But it’s not the most patriotic.
“Our tax management experts should be encouraging our businesses to pay the right taxes and follow the spirit of our tax laws, instead of spending so much intellectual energy finding all the loopholes that exist.”
He added that the government needed revenue to strengthen its public health system after the pandemic.
“We need to invest more in infrastructure and human capital development projects. Rehabilitating communities devastated by extreme weather events will impose additional costs on the government. We need to spend more to make our communities more resilient to climate change. — Jenina P. Ibanez