MANILA - A proposal to raise taxes on consumption and reduce the levy on income is being studied by the Finance department, with the hope that this could form part of the next administration’s fiscal policy.

This was part of discussions during a strategic planning session last Friday, Finance Undersecretary Gil S. Beltran told BusinessWorld.

"We are studying the proposal of some academicians to increase the VAT (value-added tax) rate and to lower the income tax," he said in a telephone interview.

"The proposal came from [the University of the Philippines’ Benjamin E.] Diokno and other economists ... This would require a long-term study ... [which] will be presented to the next administration...

"We have the raw data. We are already conducting the study."

He noted advantages in terms of improving tax administration and luring investments, saying: "If you lower income tax, you will be more competitive in terms of attracting investments. This is being implemented by countries that are aggressive in getting investments."

"It is also easier to collect VAT because you have the [documentation] trail."

Should the incoming administration greenlight the proposal, it would then be presented to Congress for approval.

"There will be consultations. The idea is to conduct the study and then inform the lawmakers about it. We cannot do it by ourselves. Congress should pass a law," Mr. Beltran said.

In March, economists Mr. Diokno, Dante B. Canlas, and Felipe M. Medalla said the VAT should be raised to 15% from the current 12% to allow the government to sustain its stimulus programs.

To cushion the added burden, they said fixed wage earners should be given a tax credit worth 3% of their income while the corporate income tax should be slashed to 25% from the current 30%. The provision of cash transfers to poor families was also encouraged.

All three are former Cabinet officials: Messrs. Canlas and Medalla were previously Socioeconomic Planning secretaries while Mr. Diokno held the Budget portfolio.

The proposal has drawn mixed views from various sectors, with some hailing it as a solution to anemic revenues and others claiming it will dampen consumption.