Analysts warn removing VAT exemptions for senior citizens will be ‘socially harmful’

By Aubrey Rose A. Inosante, Reporter

REMOVING value-added tax (VAT) exemptions for senior citizens as well as private education and healthcare may boost government revenue collections, but analysts warned this move is “socially harmful” and will drive up expenses for most Filipinos.

Bureau of Internal Revenue (BIR) Commissioner Charlito Martin R. Mendoza said the agency will leave it up to Congress if it will heed the suggestion of the Organisation for Economic Co-operation and Development (OECD) to phase out tax exemptions for senior citizens, private schools and private hospitals.

“If you reduce the exemptions, the collection will increase. That’s the effect… It depends on the wisdom of Congress. We leave that up to them,” he told reporters on Feb. 13.

The OECD in a report last week said the Philippines should consider phasing out VAT for private healthcare, education, and senior citizens, so the government can optimize taxes and revenue collections.

The Philippines charges a 12% VAT on sales, leases, barter, and imports of goods and services, the highest in Southeast Asia.

Senior citizens currently enjoy a 12% VAT exemption under the Expanded Senior Citizens Act, while private education and healthcare providers also benefit 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 citizens is regressive and will disproportionately burden lower- and middle-income households. It is socially harmful in raising the cost of living for lower- and middle-class households relying on private schools, for families driven to private healthcare due to weak public health system, and for elderly households with fixed incomes,” he told BusinessWorld in a Viber message last week.

Mr. Africa said this would 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 rather than supporting it,” he said.

Mr. Africa called for progressive taxation on billionaires, high-income families, and large corporations.

He also noted that the BIR should improve VAT administration and reduce leakages, in order 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 citizens allow them to make ends meet.

“For the seniors, we need to support them as much as we can as they do not have regular work anymore. In other countries, they would 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 private healthcare would boost government revenues but risk driving up costs for Filipinos.

“While the introduction of VAT would increase costs and could affect the country’s competitiveness as a medical tourism destination, domestic demand for private healthcare is likely to remain robust,” he said in an e-mailed statement on Feb. 15.

Private healthcare in the country is largely accessed by middle‑ to upper‑income households, expatriates, and foreign patients, Mr. Yau said.

Many residents continue to rely on private providers given gaps in the public system, he said, noting that demand will persist even as prices climb, with higher‑income patients absorbing the added costs.

“Lower income private users will be more sensitive to price changes and may shift to the public sector for some services or adjust use patterns, such as reducing frequency or opting for 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.

However, OECD economist Cyrille Schwellnus defended the Paris-based body’s suggestions, arguing that the tax breaks benefit higher-income individuals rather than intended poor beneficiaries.

“If you think of specifically the tax exemption for senior citizens, the senior citizens who consume most benefit the most because you get a discount at 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 cash transfers for indigent senior citizens, which will address fiscal consolidation and reduce inequality at the same time. 

“We think these cash transfers need to be based on a social registry. They need to be predictable,” he said.

At the same time, BMI Country Risk Analyst Brandon Ong said the Philippine government will likely retain some VAT exemptions, which will slow fiscal consolidation efforts.

“Our view is that the government will not fully phase out VAT exemptions and expect fiscal consolidation to remain slow,” he said in an e-mailed statement on Monday.

Mr. Ong also said the phasing out the VAT exemptions will be unpopular but is timely amid limited tax reform in the Philippines.

The administration pledged there will be no new taxes until the end of President Ferdinand R. Marcos, Jr.’ term in mid-2028.