WHAT MAY BE THE REASON OF SENATOR PANFILOLACSON BEHIND TELLING

THE PUBLIC TO REDUCE UNNECESSARY VAT EXEMPTIONS? WHAT ARE

THESE VAT EXEMPTIONS AND EXPLAIN ITS IMPACT ON THE OVERALL VAT
COLLECTION PROCESS
I. FACTS ABOUT THE TAX QUERY
Various sales of goods and services are exempted from VAT. VAT exempt means that if you
are the seller of these goods and services you won’t charge your customers any VAT; likewise if
you buy them there will be no VAT to recoup. For example, a doctor’s surgery won’t be able to
reclaim VAT on its accountancy fees, because services provided by a doctor are exempt from
VAT. Some products, services that will continue to be VAT-exempt under the recently imposed
TRAIN Law are Food and agricultural products, Tourism, Senior citizens, Persons with
Disability, Education, Renewable energy, Health, Condominium association dues, Enterprises
and BPOs located in Special Economic Zones, Rentals and leases below P15,000 per month and
Cooperatives.
In a radio dzBB interview, Panfilo Lacson, said that the administration should study
removing certain value-added tax (VAT) exemptions that establishments enjoy under the law to
compensate for the losses under the suggested VAT reduction to 10 percent. Lacson said they
found out that the Philippines has more tax exemptions than all neighboring South Asian
countries combined. Nearby nations like Indonesia (37 exemptions), Thailand (35 exemptions),
Vietnam (25 exemptions) and Malaysia (14 exemptions) have a minimal number of VAT
exemption. Granting Philippines has 12% VAT rate, he said nearby countries could still
shattered the Philippines collection due to these exemptions. He said this too much exemption
might be the reason why the Philippines cannot take off. Many enterprises and business have
enjoyed VAT exemptions for a very long time; aside from this exemption they also enjoy some
perks like income tax and other tax holidays. In his estimate if VAT is reduce to 10% and there
are no exemptions, the government could easily collect P1.7 trillion based on the projected gross
domestic product nominal value at P17.7 trillion on 2018; Thus Lacson seeks to remove 78 lines
of exemptions under the current tax schemes. He acknowledges also that the basic needs should
be exempted from tax like raw food, agriculture, health and education.

II. ANSWER OR RESOLUTION OF THE TAX QUERY

I am not against with Lacson’s proposed reduction of VAT exemption but only to some extent

III. CONSTITUTIONAL STATEMENT/RA/SC RULING/DOJ OPINIONS/BIR

RULING/CTA RULING/CTAEB RULING/OM/RR/RMO/RMC/RAO/RDAO
SUPPORTING YOUR ANSWER OR RESOLUTION

According to National Internal Revenue Code (NIRC) Sec. 109 exempt transactions
include the following:

 Services rendered by regional or area headquarters established in the Philippines

by multinational corporations which act as supervisory, communications branches
in the Asia-Pacific Region and do not earn or derive income in the Philippines
 Sale by non-agricultural, non-electric and non-credit cooperatives duly registered
with the Cooperative Development Authority; Provided, that the share in capital
contribution of each member does not exceed P15,000 and regardless of the
aggregate capital and net surplus ratably distributed among the member
 IV. EVALUATION OF YOUR ANSWER OR RECOMMENDATION OR
COUNTER ARGUMENT, IF NECESSARY
Philippines is a country with numerous VAT exemptions leading to a not fully
maximized success for the reason that there’s so many factors that thwarts the potential of the
state to achieve prosperity. The proposed reduction of the VAT exemption can be considered a
good step towards a better society. The industrial section which has a strong ripple consequence
on the rest of the economy, especially corporation can be developed if the government affirms
the suggested exclusion of some exemptions. But eliminating some included institutions from
VAT exemptions on the other hand could upset existing firms’ expansion and prospective
investors’ plans of opening shop in the country, and eventually it will weaken the Philippines’
position. For instance Philippines is one of the most attractive sites for BPO (Business Process
Outsourcing). In the recent estimate, it is said that BPO service industry accounts for 17% of the
Philippines GDP and 6.5% - 7% increase. In 2016, Bangko Sentral ng Pilipinas has projected
that industry revenues like BPO will overtake remittances from OFWs, also the report cited a
forecast that the sector is said to generate as much as $39 billion in revenue over the next six
years. We can project how many revenues could lose if the Philippines will remove BPOs from
the list of VAT exempt. The senate therefore must keenly evaluate the consequence of removing
certain item from the list or it will have some negative impact on country’s attractiveness for an
industry that is affected by such change.
V. REFERENCES

(2017, November 30). Retrieved March 01, 2018, from https://pinglacson.net/2017/11/28/vat-

exemptions-alleged-executions-questions-on-dpwh-funds-nov-28-2017/
(2014, October 31). Retrieved March 01, 2018, from
http://philippinetaxtalk.blogspot.com/2014/10/vat-exempt-transactions.html?m=1
PINOYMONEYTALK. (2018, February 26). Retrieved March 01, 2018, from
https://www.pinoymoneytalk.com/products-exempted-from-vat-tax-reform/
Retrieved March 03, 2018, from https://www.bir.gov.ph/index.php/tax-information/value-added-
tax.html-
CABUENAS, J. V. (2017, May 30). GMA News Online. Retrieved March 03, 2018, from
http://www.gmanetwork.com/news/money/economy/612680/removing-vat-exemption-
of-bpo-sector-to-stifle-growth-colliers/story/
TAX APPLICABLE TO MUSIC PRODUCERS/MUSIC DIRECTOR

I. FACTS ABOUT THE TAX QUERY

Music director and producers are commonly responsible in presenting quality music to
everyone. These two though have different responsibilities and duties in creating a song.
Producers are typically involved with the recording process that is usually done in the studio.
Meanwhile, director typically led musicians during performances. In terms of educational
requirements, music producer only need at least a Bachelor’s Degree on the other hand Music
Director should either be Bachelor’s Degree but preferably on its Master’s Degree. The good
thing about this industry is that there is a 3% job growth in these fields from year 2014-2015. In
the Philippines, musical director is subject to a 10% expanded withholding tax if the current
year’s gross income is 720,000 and below and must file using BIR Form 1601-E/2307. By
expanding withholding tax, it means to say that it should withhold and remit to the government,
when applicable. In turn, the payees of these income payments can claim those taxes withheld as
creditable against their income tax due for the corresponding quarters or year by attaching the
applicable certificate of creditable tax withheld.

II. ANSWER OR RESOLUTION OF THE TAX QUERY

I do not agree that musical director or producer should be subjected to a 10% expanded
withholding tax.

III. CONSTITUTIONAL STATEMENT/RA/SC RULING/DOJ OPINIONS/BIR

RULING/CTA RULING/CTAEB RULING/OM/RR/RMO/RMC/RAO/RDAO
SUPPORTING YOUR ANSWER OR RESOLUTION
In the index for withholding tax, BIR Form No. 1601-E requires a monthly remittance of
income taxes withheld except for transactions involving onerous transfer of real property
classified as ordinary asset.

BIR FORM TAX TYPE DESCRIPTION ATC TAX RATES

1601-E/2307 WE Movie, stage, Wl040 10%
radio, television
and musical
directors and
producers – if the
current year’s
gross income is
P720,000 and
below

In 2018 under the Senate Bill 1592 or the Tax Reform for Acceleration and Inclusion
(TRAIN), self-employed individuals and professionals can choose between an 8% flat tax on
gross sales or receipts to be filed only once a year or the schedular personal income tax rate with
allowable deduction. The 8% tax will be in lieu of the personal income tax, which is currently
filed quarterly, and the percentage tax, filed monthly.
 IV. EVALUATION OF YOUR ANSWER OR RECOMMENDATION OR
COUNTER ARGUMENT, IF NECESSARY

I do not agree that the musical director and producer should be subjected into a 10%
expanded withholding tax because although they are like lawyers, certified public accountants,
doctors of medicine, architects, engineers that are considered practicing their profession, musical
directors are promoting Original Pilipino Music. The government should give some perks to the
musical directors and producers in able for our music industry to boost, because OPM is in a
downward spiral, despite annual song-writing competitions, big-budgeted concerts, and the
expensive production of CD albums. Likewise, the dominance of foreign music is another hurdle
to take in the way of OPM’s progress. By giving some incentives for example a lower tax rate
could build a vibrant and sustainable music industry.

V. REFERENCES

Retrieved March 03, 2018, from https://www.bir.gov.ph/index.php/tax-information/value-added-

tax.html-
Retrieved March 04,2018, from https://www.caclubindia.com/experts/service-tax-on-music-
director-1285324.asp-
Retrieved March 04, 2018, from
https://study.com/articles/difference_between_music_producer_music_director.html
WHAT IS SUBSISTENCE? TAX BRACKET OF A TRICYCLE OWNER/DRIVER AND
DO WE HAVE A PROPER REASON TO BELIEVE THAT HE IS WORKING FOR
SUBSISTENCE?
I. FACTS ABOUT THE TAX QUERY
Subsistence is the condition of just having enough food or money to stay alive. In taxation,
business principally for subsistence or livelihood refers to business with gross sales or receipts
not exceeding P100, 000 per year. The individuals considered engaging into business for mere
subsistence is called marginal income earners. The marginal income earners do not derive
income under employer-employee relationship but instead self-employed deriving sales or
receipts not exceeding P100, 000 in any 12-month period. Some examples of marginal income
earners include the following:
1. Agricultural growers or producers (farmers or fishermen)
2. Small sari-sari stores’
3. Small carinderias or “turo-turos”
4. Drivers or operators of a single unit tricycle, and
5. Other similarly situated
Since drivers or operators of tricycle are considered marginal income earners there is no tax
bracket on their returns.
II. ANSWER OR RESOLUTION OF THE TAX QUERY

Marginal Income earners like tricycle drivers should be exempt from paying business tax
because they are working for mere sustenance.

III. CONSTITUTIONAL STATEMENT/RA/SC RULING/DOJ OPINIONS/BIR

RULING/CTA RULING/CTAEB RULING/OM/RR/RMO/RMC/RAO/RDAO
SUPPORTING YOUR ANSWER OR RESOLUTION
According to the Revenue Memorandum Circular No. 7-2014 the Marginal Income Earners
(MIE) requires to comply with the requirements pursuant to Revenue Regulation No. 7-2012
The incidence of being a MIE, as required under RR No. 7-2012, covers the following privileges
and minimum registration and compliance requirements:
a. Registration with the BIR using BIR Form 1901 with the following minimal documentary
requirements:
i. Sworn Statement of Icome for the year; and
ii. National Statistics Office Certified or Local Civil Registry Birth Certificate;
b. Exemption from the payment of Annual Registration Fee;
c. Registration of Books of Accounts (e.g two-column journal or other simplified books for
daily expenses and revenues);
d. Issuance of registered principal receipts/sales invoices as prescribed under Revenue
Memorandum Order No. 12-2013;
e. Filing and payment of Annual Income Tax Return using BIR Form 1701 similar to any
other self-employed individuals; and
f. Exemption from payment of business taxes (i.e. Value-Added Tax or any Percentage
Tax).
The BIR District Office, upon evaluation of application for registration, shall issue the
Certificate of Registration and shall likewise ensure compliance with the registration of
books of accounts and issuance of Authority to print for their Principal Receipts/Sales
Invoices
Under the Revenue Regulations No. 7-2012, Section 9 “For marginal income earners, the
activities of such individuals are considered principally for subsistence or livelihood. Moreover,
they are not required to pay any ARF although they are required to register as taxpayers for
being potential income and withholding tax filers. For purposes of registration, they will be
registered for the tax type Income Tax and Form Type 1701. Notwithstanding their exemption
from business taxes and ARF, they are liable to pay Income Taxes similar to any other individual
engaged in business or practice of profession, after applying the allowable deductions against
their Gross Income/Sales/Receipts and personal/additional exemptions granted under the Tax
Code.”

IV. EVALUATION OF YOUR ANSWER OR RECOMMENDATION OR

COUNTER ARGUMENT, IF NECESSARY
Tricycle drivers are considered marginal income earners and thus must exempt from paying
business tax because unlike other licensed professionals they are earning for mere subsistence.
Registered tricycle drivers have a small amount of profit. It may be true that they earn different
profits like self-employed individuals, but the only thing that differentiates each driver is their
willingness to work hard and earn more. But there’s an uncertainty if the requirements set by
the government can be followed especially by the drivers of tricycle. Let’s take for instance a
driver who has no extensive knowledge about the concept of debit and credit. It could be
cumbersome for him to record transactions he had for a particular day and also the issuance of
sales invoice; it may perhaps be ignored by the drivers because it is an extra work for them,
because aside from the list requirements they should also secured necessary permits to be
allowed to fetch passengers. That amount is on top of the expenses for availing a new plate
number and renewing his driver’s license. It is a good thing that government is considerate to the
marginal income earners but they should limit the requirements particularly the tricycle
chauffeurs who do not make a sizable income.

V. REFERENCES

TARUC,P. (2015, March 25). CNN Philippines. Retrieved March 03, 2018, from
http://cnnphilippines.com/news/2015/03/16/tricycles-as-iconic-as-jeepneys.html
MIKHAIL, F.E. (2014,August13). BusinessWorldOnline. Retrieved March 03, 2018, from
http://www.bworldonline.com/content.php?section=Economy&title=tax-exemption-of-
small-income-earners-will-create-loopholes&id=92679
Retrieved March 03, 2018, from https://www.bir.gov.ph/index.php/tax-information/value-added-
tax.html-
SilenGardens. (2016). Retrieved March 04, 2018, from https://www.silent-
gardens.com/tricycle.php