Economic Relief in the Time of COVID-19: Rationale, Mechanics, Costing, and Prospective Impact of Temporary Value-Added Tax (VAT) Suspension and Income Tax Waiver for the Poor and the Middle Class in the Philippines

Abstract

As a response to the economic crisis brought by COVID-19, the Philippine government has started to implement its Social Amelioration Program (SAP) which aims to provide a monthly cash aid worth 5,000 to 8,000 Philippine pesos (US$ 99.08 to 158.53 at the exchange rate of US$ 1 = 50.46 pesos) to each of the target households pegged at 18 million, for an initial period of two months. Beneficiaries complain that the amount will not be enough for all their needs, while non-beneficiaries and even local government officials clamor for a more broad-based aid scheme. To help provide a feasible solution, this paper will discuss the rationale, mechanics, costing, and prospective impact of temporary Value-Added Tax (VAT) suspension and income tax waiver for the poor and the middle class in the Philippines. The proposed VAT moratorium shall cover food, medicine, basic commodities, & utilities, while the proposed income tax waiver shall cover both public and private workers/employees, except those in the top-income bracket. International benchmarking and funding options for this supplementary economic relief will be also explored.

Full text

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Economic Relief in the Time of COVID-19: Rationale, Mechanics,
Costing, and Prospective Impact of Temporary Value-Added Tax (VAT)
Suspension and Income Tax Waiver for the Poor and the Middle Class
in the Philippines
David Michael M. San Juan
Professor, De La Salle University-Manila
david.sanjuan@dlsu.edu.ph
Abstract: As a response to the economic crisis brought by COVID-19, the Philippine
government has started to implement its Social Amelioration Program (SAP) which aims
to provide a monthly cash aid worth 5,000 to 8,000 Philippine pesos (US$ 99.08 to 158.53
at the exchange rate of US$ 1 = 50.46 pesos) to each of the target households pegged
at 18 million, for an initial period of two months. Beneficiaries complain that the amount
will not be enough for all their needs, while non-beneficiaries and even local government
officials clamor for a more broad-based aid scheme. To help provide a feasible solution,
this paper will discuss the rationale, mechanics, costing, and prospective impact of
temporary Value-Added Tax (VAT) suspension and income tax waiver for the poor and
the middle class in the Philippines. The proposed VAT moratorium shall cover food,
medicine, basic commodities, & utilities, while the proposed income tax waiver shall cover
both public and private workers/employees, except those in the top-income bracket.
International benchmarking and funding options for this supplementary economic relief
will be also explored.
Keywords: COVID-19, poverty, Philippines, middle class, economic relief
~~~
“It is a time of crisis for everyone. Not just the poorest of the poor, but also those
who have built much but not enough…They scrimp and pawn and borrow.
They are barely surviving.”
– Governor Jonvic Remulla of the Province of Cavite
~~~
Writing to Philippine President Rodrigo Duterte, Governor Jonvic Remulla (2020) of the
Province of Cavite (a populous province south of Manila), voiced out a popular clamor for
financial aid to a broader segment of households, when he appealed for the inclusion of
middle class families into the Philippine government’s Social Amelioration Program (SAP)
which was crafted in response to the crisis brought by the COVID-19 pandemic: “They
may not get as much as the poorest of the poor but please consider their welfare. They

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are often overlooked. They pay the most taxes. They keep our economy alive. They are
mostly law-abiding citizens. They need a break.” (emphasis supplied). Beyond the SAP,
this paper proposes at least a six-month break for poor and middle-class workers,
through a Value-Added Tax (VAT) moratorium on food, medicine, basic commodities, &
utilities, and an income tax waiver.
Rationale of Additional Economic Relief for Poor and Middle-Class Households
According to an official Philippine Department of Social Welfare and Development/DSWD
infographic (DSWD Region V, 2020), only households with at least one member from any
of the following vulnerable or disadvantaged sectors are qualified to receive the Social
Amelioration Card (SAC) through which a monthly cash aid amounting to 5,000 to 8,000
pesos (per household) will be deposited for at least two months: senior citizens (with
some exceptions); people with disability/PWDs; pregnant or wet nurse; solo parents;
Overseas Filipinos (OFs) in distress – defined by a 2017 Philippine Statistics
Authority/PSA board resolution as those with “medical or psycho-social problems
requiring treatment, hospitalization, counseling or problems like labor, immigration and
other issues requiring legal representation…”; poor indigenous people; homeless
citizens; workers in the informal sectors (directly-hired or occasional workers, and
subcontracted workers); domestic workers; househelp; pedicab, tricycle, Public Utility
Jeepney (PUJ), Utility Vehicle (UV), Public Utility Bus (PUB), taxi, Transportation Network
Vehicle Service (TNVS), and Transport Network Company (TNC) drivers; micro-
entrepreneurs and producers; owners of small “mom-and-pop” (sari-sari) stores and
similar enterprises; owners of family businesses; sub-minimum wage earners; farmers,
fishermen, and farm workers; employees affected by “no-work, no-pay” scheme who are
not covered by any of the Philippine Department of Labor and Employment/DOLE
aid/relief schemes listed in DOLE Order No. 209, Series of 2020.
Cash aid through SAP is being disbursed through a process supervised by the DSWD,
which automatically disqualifies many citizens like the following (Parrocha, 2020;
Mangaran, 2020a and 2020b): 1) barangay (village) officials and volunteers; 2) public
sector (Government Service Insurance System/GSIS) or private sector (Social Security
System/SSS) pensioners; 3) senior citizens who are parents of professionals; 4) senior
citizens who receive remittances from their Overseas Filipino Worker/OFW son/s and/or
daughter/s (even in cases where remittances are temporarily stopped); 6) those in the
formal sector (employees/workers); 7) those living in a household where another member
has already qualified for SAP (as only one slot will be allotted per household); 8)
government employees, including those under Job Order/JO (contract-based/temporary
work) schemes; 9) sari-sari store owner who is still able to operate; 10) those with a big
house; 11) those still receiving wages/salaries; 12) peasants who till at least 1 hectare of
farmland; 13) business owners; 14) tricycle drivers whose husband/wife is a beneficiary

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of the government’s Pantawid Pamilyang Pilipino Program/4Ps, a conditional cash
transfer/CCT scheme (DSWD, 2008). The said scheme started in 2008 and it currently
provides a health grant worth 500 pesos per household every month, or a total of 6,000
pesos every year, an education grant worth 300 per child every month for ten months, or
a total of 3,000 pesos every year, with a maximum of three children per household
(Presidential Communications Operations Office/PCOO, 2020). According to the
Philippine Department of Interior and Local Government/DILG (2020), 4Ps beneficiaries
will automatically receive cash aid from SAP, on top of their existing 4Ps grants (Calipay,
2020).
Hence, in practice and in accordance with government pronouncements, the SAP is
reserved only for the poorest of the poor (Cudis, 2020). Using the PSA’s 2015 census
data, the 18 million target households for SAP (DSWD, 2020) represents almost 80% of
the 22,975,630 number of households nationwide. Local realities would of course be more
complex. For example, Vincent Dagdag (2020), barangay chairperson/captain of
Barangay Olympia, Makati, complained in a letter addressed to the regional director of
DSWD in the National Capital Region/NCR that with the SAP slots given to his barangay,
only 41% of households will be covered. While echoing the same sentiment on the limited
coverage of the SAP, at least one local government unit has promised to provide
supplemental cash aid to their constituents (Sotto, 2020). Many local government officials
also complain about what they call as a “quota system” which sets a fixed number of SAP
slots for every city or municipality and hence, excludes many households too (Chiu,
2020). Meanwhile, Davao Region (Region XI) will have SAP allocations for 953,521
households (Banzon, 2020), almost 81% of households as per the 2015 PSA census
data. Using the same census data, the SAP beneficiaries from the Bicol Region (Region
V) reach slightly more than 94% of households (Calipay, 2020). Beneficiaries complain
that the cash aid from SAP won’t cover all their needs (Prietos, 2020), especially that
many poor citizens who have jobs or micro businesses in the informal sector have been
displaced or driven out of business when the Philippine government ordered much of the
country to be subjected under Enhanced Community Quarantine (ECQ) and as other local
government units imposed similar restrictions in their areas too. Hence, some
organizations are appealing for the expansion of aid schemes (Bagong Alyansang
Makabayan/BAYAN, 2020; Alliance of Concerned Teachers-Private Schools et al., 2020),
while local government officials are requesting for additional slots in the SAP (Mateo,
2020).
While the poorest of the poor are rightfully prioritized in the implementation of SAP, the
not-so poor and the middle class would seem to be left to fend for themselves in this time
of crisis. Hence, observers now ask: don’t the not-so poor and the middle-class sectors
deserve help too? It is now necessary to quickly review the government’s definition of the

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poverty threshold, which also determines who’s officially classified as “poor,” “low income
but not poor,” “lower middle income,” “middle middle income,” “upper middle income,”
“upper income but not rich,” and “rich” (Albert et al., 2018), vis-à-vis a labor group’s
(Defend Jobs Philippines, 2018) and a think tank’s (IBON Foundation, 2020) estimates.
The PSA (2019) still uses 10,727 pesos – “on average, for a family of five per month in
2018” – as the official poverty threshold. This means that, officially, only families with an
income lower than 10,727 pesos monthly are considered poor. As Table 1 shows, using
more realistic ranges for income clusters will yield the fact that a good number of those
who are excluded from SAP would still be in fact poor, based on actual, ground-based
statistics. Academic critiques of official poverty statistics in the Philippines are also
instructive (see Mangahas, 2011 and 2019; San Juan and Agustin, 2019; Chossudovsky,
2018). Simply put, the Philippines has more poor citizens than it cares to admit.
Available official statistics were collected and released even before the COVID-19 global
pandemic that has either displaced thousands of employees/workers, reduced the
income/s of many citizens, extinguished most opportunities to earn supplementary
income from part-time jobs and/or businesses, and wiped out many informal economy
jobs – realities which will certainly make the numbers of poor Filipinos swell.
Table 1. Poverty and Living Wage Thresholds: Official Data Vis-à-vis Labor and Think Tank
Statistics (All Amounts in Philippine Pesos; US$ 1 = 50.46 pesos)
Income Cluster
Family Income for a
Family of Five (as per
official statistics)
Indicative range at
2018 prices
(using per official
statistics)
Indicative
range at 2018
prices
(using a labor
group’s
statistics)
Indicative range
of family living
wage (enough
“to live
decently”) at
2020 prices
(using a think
tank’s statistics)
Poor
Below official poverty
threshold
Less than 10,727
Less than
16,450
Less than 31,089
Low income class
but not poor
Between poverty line and
twice the poverty line
10,727 to 21,454
16,450 to 32,900
31,089 to 62,178
Lower middle-
income class
Between 2 and 4 times the
poverty line
21,455 to 42,908
32,901 to 65,800
62,179 to 124,356
Middle middle-
income class
Between 4 and 7 times the
poverty line
42,909 to 75,089
65,801 to
115,150
124,357 to
217,623
Upper middle-
income class
Between 7 and 12 times
the poverty line
75,090 to 128,724
115,151 to
197,400
217,624 to
373,068
Upper income
class but not rich
Between 12 and 20 times
the poverty line
128,725 to 214,540
197,401 to
329,000
373,068 to
621,780
Rich
At least equal to 20 times
the poverty line
214,541 and above
329,001 and
above
626,781 and
above
Sources: Philippine Institute for Development Studies/PIDS, 2019; Albert et al. 2018; Defend Jobs
Philippines, 2018; IBON Foundation, 2020.

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Using 31,089 pesos as the poverty threshold, households relying on just one income of
any of the pensioners/workers/professionals listed in Table 2, would have to be
considered as poor and hence, must be covered by SAP and/or given some
supplementary aid. Setting such a higher poverty threshold is actually still on the safe
side, as even National Economic Development Authority (NEDA) Director General
Ernesto Pernia was quoted as saying he thinks “roughly P42,000 a month would be a
more decent income, at least to live above the poverty line” (see Cordero, 2018). An
illustrative sampling of pensioners/workers listed in Table 2 include low-wage service
sector workers who are among the frontliners in this crisis, such as cashiers, food
processing and related trades workers, and service crew who still work and receive wages
now, and are thus technically disqualified from receiving SAP aid.
Table 2. Selected Workers/Professionals with Salaries Below the Living Wage/Realistic Poverty
Threshold
Status/Work/Profession
Data on Monthly
Salary/Pension
(in Philippine pesos;
US$ 1 = 50.46 pesos)
Additional Explanation
SSS Pensioner
18,945
Highest amount of SSS pension
(see Philippine Information Agency,
2019)
Retired Teacher
(GSIS Pensioner)
17,178
Sample computation of lifetime
pension as part of retirement benefit
under Republic Act No. 660 and
Republic Act No. 7699 (see Llego,
2019)
OFW (Domestic Helper)
22,310
Average salary in Singapore (see
Mahmud, 2019)
Entry-level Private School
Teachers
9,411 to 14,000
Based on a 2017 ACT Private
Schools online survey (see San
Juan, 2019)
Entry-level Public School
Teachers
22,316
As of this year (see Bueza, 2020)
Professional Nurses
12,662
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Entry-level Government
Nurse
30,351
Applicable from 2020 onwards (see
Santos, 2019)
Food Processing and
Related Trades Workers
10,637
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Cashiers
10,312
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey

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Film and Video Editors
19,832
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Architects
27,463
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Cooks
12,470
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Food and Related Products
Machine Operators
13,737
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Food Technologists
19,099
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Service Crew
10,841
“Average monthly wage rate” based
on PSA’s 2016 Occupational Wages
Survey
Sources: As mentioned in the third column.
Meanwhile, for those categorized as “low income but not poor,” and as belonging to any
of the middle classes, it must be emphasized that the ECQ has hiked expenses for many
families (see Table 3). For example, additional transportation costs – via tricycle rides –
are now part of the norm, with fares rising from the pre-COVID-19 rate of 35 pesos for
short-term and 50 pesos for longer distances, to the current COVID-19-era rate of 50
pesos and 100 pesos, respectively. Ordinary folks resort to riding in tricycles as walking
long distances is not feasible when you intend to buy commodities good for a week or two
– which is preferable as citizens need to minimize going out of their homes as much as
possible (as per ECQ rules and rationale). People are also consuming more food –
whenever they can afford it – as staying at home means boredom and frequent eating for
sure. While industrial and commercial demand for energy has decreased, residential
customers will certainly have increased demands for electricity and other utilities (Rivera,
2020; Domingo, 2020; Panti, 2020), as people stay mostly indoors because of the ECQ.
Thus, consumers would have to brace for higher energy and utilities bills too. As per
government regulations, wearing face masks are now required for those going out of their
homes. Disposable surgical face masks now cost 28 pesos per piece (ABS-CBN News,
2020a), a big hike from the pre-ECQ rate of 8 pesos per piece (Paunan, 2020). Buying
alcohol and disinfectants have also become common. People have also started buying
multivitamins or at least Vitamin C tablets or capsules. Conzace, a popular brand of
multivitamins is 12.50 pesos apiece (Watsons, 2020a), while Potencee, a popular brand
of Vitamin C is 6 pesos apiece (Watsons, 2020b). Hence, clearly, the COVID-19
pandemic is forcing families to shell out money for expenses which were typically
unnecessary pre-COVID-19 times.

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Table 3 Estimated Additional Monthly Expenses for a Family of 5 in the Philippines, At the Time of
COVID-19 (in Philippine pesos; US$ 1 = 50.46 pesos)
Item
Cost
Explanation
Additional fare
60 to 200
Assuming a family member rides a
tricycle from the public
market/supermarket, once a week
Additional electricity consumption
186
Assuming a 25% increase in the bill,
based on NEDA’s “consumer basket”
(Rivas, 2018)
Additional water consumption
123
Assuming a 25% increase in the bill,
based on a 20-cubic meter usage
(Maynilad, 2020)
Additional food consumption
300 to 3,700
Assuming a 25% increase in expenses
for meat and fish based on NEDA’s
“consumer basket” (Rivas, 2018), or for
estimated “food expenses” for a family of
5 (IBON Foundation, 2020)
Additional retail load for mobile phone (to
purchase internet data)
299
Equivalent to 2 GB worth of internet data
valid for a month (Globe, 2020)
Vitamins
900
One Potencee capsule per day for every
family member (Watsons, 2020b)
Face Masks
448
One face mask each for two family
members going out of their homes to buy
supplies and/or work etc., twice a week
Alcohol
132
One bottle of a 500-ml alcohol (Watsons,
2020c) per week
Total
2,448 to 5,988
The lower limit is closer to the
consumption patterns of poor families
while the upper limit applies to middle
class families
Source: Author’s estimates based on data on prices from those mentioned in the third column.
Within the context of the documented increase in expenses, some families who are yet
to receive government aid (or are disqualified from receiving it) are resorting to either
loans or dipping into whatever little savings they have (ABS-CBN News, 2020b).
According to the Consumer Expectations Survey of the Bangko Sentral ng
Pilipinas/Central Bank of the Philippines (BSP) for the last quarter of 2019, “the
percentage of households with savings at present went down to 36.3 percent from an all-
time high of 37.5 percent in the previous quarter.” Almost 64% of households in the
country have no savings at all, as visualized in Figure 1. According to the PIDS (2019),
1.4% of Philippine households are “rich”; 40.2% are part of the “middle-income class,”
and 58.4% belong to the “low-income class” (see Figures 2 and 3) Assuming that all
low-income households have no savings, linking the BSP statistics on savings with PIDS
statistics on class composition of Philippine households, it’s clear that certain segments
of the middle class households (representing around 5.3% of the total households in the

8
country) have no savings too. The number of middle-class households with no savings
could be theoretically higher, as some low-income households could theoretically have
savings.
Figure 1. Percentage of Philippine Households With and Without Savings
1
Source: BSP, 2019.
Figure 2. Percentage of Every Class Categorization of Philippine Households
2
Source: PIDS, 2019.
1
Figure was created through Microsoft Word’s “Insert Chart” command, and by default, it rounds off numbers
encoded for a pie graph.
2
Figure was created through Microsoft Word’s “Insert Chart” command, and by default, it rounds off numbers
encoded for a pie graph.
Households
With Savings
36%
Households
Without
Savings
64%
Rich Class
2%
Middle-Income
Class
40%
Low-Income
Class
58%

9
Figure 3. Estimated Number of Philippine Households in Every Class Categorization
Source: Aggregation of data from PIDS, 2019 (for percentage) and PSA, 2015 (for the number of Philippine
households).
Thus, there is a need to expand the coverage of financial aid and/or propose ways to
implement new supplementary economic relief for both poor and middle-class citizens.
Expanding the coverage of SAP – considering the tedious process of application and
verification (see Aceron, 2020; Chiu, 2020) – will not be practical. While expanding the
coverage of the government’s original Social Amelioration Program/SAP which directly
gives a monthly cash aid worth 5,000 to 8,000 pesos to at least 18 million poor
households, is good and will be very much welcome, supplementing it with a swifter,
simpler, cheaper, and less bureaucratic way of implementing additional economic relief
through partial VAT suspension and income tax waiver is certainly better.
Mechanics for a Six-Month VAT Moratorium and Income Tax Waiver
These policies may require the passage of a special law – which, at this time is surely
doable, as proven by the swift approval of Republic Act 11469 (“Bayanihan to Heal as
One Act 2020”). The Philippine House of Representatives approved the said law in a
historically speedy session lasting only 14 hours (Luci-Atienza, 2020). Implementing such
a law will be swift and easy as it will only involve receipt-issuing stores, pharmacies,
groceries, fast food chains, and supermarkets (for VAT suspension), and payroll
321,659

10
managers of firms/companies (for income tax waiver). Hence, it will be a smooth,
seamless, queueless, paperless, and bureaucracy-free transaction.
The proposed moratorium on VAT collection shall apply to food, medicine, and other basic
and prime commodities. At the minimum, the following items – covered by a prize freeze
triggered by Presidential Proclamation 922 on COVID-19 as a national public health
emergency (Department of Trade and Industry, 2020) – should be VAT-free for at least
six months: canned fish and other marine products, locally manufactured instant noodles,
bottled water, bread, processed milk, coffee, candles, laundry soap, detergent, cooking
oil, LPG, kerosene, and the like. Canned meat, processed meat, fast food, flour,
condiments etc. should also be covered by this scheme. To expand the items covered by
the proposed six-month VAT moratorium, Republic Act No. 9994 or the “Expanded Senior
Citizens Act of 2010,” and the Bureau of Internal Revenue’s (BIR) Revenue Regulations
(RR) No. 9-2019 could provide additional insights. The former lists some VAT exemptions
for senior citizens, while the latter enumerates “VATable” items – such as basic and prime
commodities – for which Persons With Disability (PWDs) are given a 5% discount (albeit,
while still not exempt from VAT). With regard to medicines, as of this writing, as per
Republic Act 10963 (“Tax Reform for Acceleration and Inclusion (TRAIN) Law”), only
“medicines prescribed for diabetes, high cholesterol, and hypertension” are covered by
VAT exemption. At least for six months, while people are dealing with the COVID-19
pandemic, all medicines – including vitamins – should be exempted from VAT. Alcohol,
disinfectants, and similar germ-fighting essentials should be also exempted from VAT, at
least for six months. Furthermore, this proposed six-month VAT suspension shall also
apply to utilities such as electricity, water, and communications (phone and/or internet
services). This will ensure immediate short-term relief and ample financial breathing
space for our people.
Considering that in 2019, 42.2% of the total expenditure of Philippine households go to
“Food and Non-alcoholic Beverages,” while 12.1% goes to “Housing, Water, Electricity,
Gas and Other Fuels” (PSA, 2020a) as visualized in Figure 4, suspending VAT collection
on many food items and on utilities would certainly be beneficial to many citizens.

11
Figure 4. Percentage of Expenditures of Philippine Households in 2019
3
Source: PSA, 2020a.
This will benefit both poor, low-income, and middle-income households as the bulk of
these households’ expenditures are spent for such items (see Figure 5). The findings of
a European-wide study on VAT reduction (Copenhagen Economics, 2007) offers
applicable insights that favor the temporary, crisis-bound elimination of VAT in the
Philippine situation: “(r)educing VAT rates on food which constitutes a larger share of
consumption for low income households than for high income households implies a cost
saving that is particularly beneficial for low income households. The larger the difference
in consumption shares is, the more effective the argument becomes.” As Figure 5 shows,
the consumption shares of food (colored blue in the figure) among poor and middle class
households (the first four bars – from the left – in the figure) are definitely bigger than the
consumption share of food among rich(er) households (the last two bars in the figure).
3
Figure was created through Microsoft Word’s “Insert Chart” command, and by default, it rounds off numbers
encoded for a pie graph.
Food Etc.
42%
Housing, Water,
Electricity Etc.
12%
Others
46%

12
Figure 5. Percentage of Family Expenditure by Income Class in 2018
Source: PSA, 2020b.
Temporarily suspending the collection of VAT can also potentially boost the economy
through anticipated additional spending as people are expected to use temporary VAT
“savings” to buy more necessities (based on their historical consumption patterns
discussed and shown above). Such grassroots spending empowerment will be necessary
if we are to quickly recover economically-speaking, from the impact of the COVID-19
pandemic.
Meanwhile, the proposed income tax waiver shall cover all employees both in the public
and private sectors. This could be easily implemented by payroll managers who would
only adjust their data to have zero income tax deductions from wages/salaries for at least
six months. In almost all companies, such process is a purely electronic one. For
purposes of economic justice, those who have a net annual taxable income of above
2,000,000 pesos, could be excluded from this income tax waiver. Furthermore, to expand
coverage of the scheme, the Philippine government is encouraged to consider
reimbursing a 6-month worth of previous income tax payments to those who were recently
displaced because of the ECQ and/or the economic impact of the COVID-19 pandemic.
This is also easy to implement as almost all employees in the country receive
wages/salaries via ATM cards, and the recently displaced would certainly still have their
employment ATMs at this point, while their employers retain their records in their
database. Hence, unlike in the implementation of SAP, for this scheme, there will be no
long queues or tiresome submission of documents. The Philippine government could
easily get the old employment records in the employers’ databases, and the displaced
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Less than
40,000
40,000 -
59,999
60,000 -
99,999
100,000 -
249,999
250,000 -
499,999
500,000 and
over
58.3 58.9 58.3 52.8 44.1 31.4
9.6 8.9 8.2 8.2
8.5
7.8
32.1 32.2 32.8 39 47.4 60.8
Percentage
Income Class
Total Food Expenditure Water, Electricity, Gas and Other Fuels Others

13
workers would instantly receive cash aid. Topping up the proceeds of the proposed tax
waiver and the tax reimbursement is also desirable for workers in the low-tier tax brackets.
VAT Suspension’s Impact on Savings of an Average Filipino Family
To further highlight the positive impact of such urgent supplementary relief measures, this
note will present data on projected family savings, if VAT collection on certain items is
suspended. Ranges of savings are computed using monthly consumer baskets/budget
breakdowns from the National Economic and Development Authority/NEDA (in Rivas,
2018), IBON Foundation – a progressive think tank (2020), and Defend Jobs Philippines
– a broad network of labor advocates and organizations (2018). The prevailing conditions
within the ECQ period have been taken into consideration. For example, it is assumed
that Filipino families would favor buying processed meat and processed fish (which are
both VATable) and thus, “meat” and “fish” will be considered as “processed meat” and
“processed fish” for this paper. The same assumption is applied to “food expenses” and
“meal.” Moreover, “communication” will be considered as expenses for load, mobile
phone usage, internet data purchase and the like (all VATable). Also, “restaurants and
miscellaneous goods and services” will be assumed to cover only fast food take-outs
(VATable), with its sub-item “personal care” assumed to cover only items such as soap
and alcohol (both VATable). The same assumption was applied to “miscellaneous
goods/services” and “special family occasion.” Final data on savings are for a 6-month
period and hence computed using the formula: Difference of Price With VAT and Price
Without VAT, Multiplied By 6. As prices are generally higher in 2020 than in 2018, it is
clear that the “savings” computed using NEDA’s and Defend Jobs Philippines’ data would
be on the lower limits of actual savings, while those computed using IBON Foundation’s
data would be closer to current realities.
Based on NEDA’s data, Filipino families will each save at least 2,723.76 pesos if VAT on
certain products is suspended for 6 months. Based on Defend Jobs Philippines’ data,
Filipino families will each save at least 4,788 pesos. Meanwhile, using IBON Foundation’s
data, Filipino families will each save at least 14,729.04 pesos. Details of the computation
are in Tables 4 to 6. Actual family savings will be definitely higher for most families,
as the proposed VAT suspension is intended to cover ALL medicines, vitamins,
and alcohol too (which are absent in the consumer baskets/budget breakdowns of
NEDA, IBON Foundation, and Defend Jobs Philippines). Such savings will definitely
empower both poor and middle-class households to buy more necessities in a time of
crisis, and hence not only help themselves but also the national economy in the process.

14
Table 4. Estimated 6-Month Savings if VAT is Suspended, Based on IBON Foundation’s 5-member
“family living wage” breakdown
VATable component in
the breakdown
Monthly Price
with VAT
Monthly Price
without VAT
TOTAL SAVINGS
for 6 months
Food Expenses
14,798
13,022.24
10,654.56
Water, Electricity, Gas, Etc.
3,016
2,654.08
2,171.52
Miscellaneous Goods/
Services
1,772
1,559.36
1,275.84
Communication
529
465.52
380.88
Special Family Occasion
342
300.96
246.24
TOTAL:
20,457
18,002.16
14,729.04
Table 5. Estimated 6-Month Savings if VAT is Suspended, Based on NEDA’s “monthly consumer
basket of an average Filipino family”
VATable item in the
Consumer Basket
Monthly Price
with VAT
Monthly Price
without VAT
TOTAL SAVINGS
for 6 months
Meat
625
550
450
Fish
574
505
413.28
Non-Alcoholic Beverages
288
183.04
207.36
Electricity, Gas, and Other
Fuels
744
654.72
535.68
Communication
293
257.84
210.96
Restaurants and
Miscellaneous Goods and
Services
1,259
1,107.92
906.48
TOTAL:
3,783
3,329.04
2,723.76
Table 6. Estimated 6-Month Savings if VAT is Suspended, Based on Defend Jobs Philippines’
“average monthly budget” of 5-member, poor families
VATable item in the
Monthly Budget
Monthly Price
with VAT
Monthly Price
without VAT
TOTAL SAVINGS
for 6 months
Electricity, LPG, Water Bill
2,150
1,892
1,548
Meal
4,500
3,960
3,240
TOTAL:
6,650
5,852
4,788
International Benchmarking on COVID-19-Era VAT and Individual Tax Reliefs
The Philippines has nothing to fear in seeking seemingly out-of-the-box solutions to the
plight of its poor and middle-class citizens, like temporary VAT suspension. Many
countries of the world are “turning to emergency tax breaks to support their stuttering
economies under the coronavirus (COVID-19) threat,” with the following either proposing
or now implementing various schemes of at least cutting their VAT rates for certain
products and services: Greece, Norway, Moldova, Kenya, Turkey, Jamaica, China, South
Korea, and Vietnam (Asquith, 2020). Paraguay has also reduced VAT rates on certain
products (Deloitte, 2020). Meanwhile, Indonesia has also waived “10% consumption

15
taxes on hotels and restaurants in Bali and nine other tourist destinations for the next
three months” (Asquith, 2020).
Similarly, the feasibility of the proposed income tax waiver in the Philippines is boosted
by the fact it will not be the first to implement it, should its government be persuaded to
try it. In response to the crisis caused by COVID-19, Indonesia has recently announced
that it will waive the personal income tax of employees/workers, and the income tax of
entrepreneurs in the manufacturing sectors, for six months (Baskoro, 2020; Bloomberg
Tax, 2020).” PricewaterhouseCoopers/PWC (2020) notes that such move is expected “to
boost” the Indonesian people’s “purchasing power. Furthermore, in the same compilation,
PWC lists various schemes that favor many individual taxpayers: in China, “(w)here
enterprises or individuals donate cash or articles to cope with the epidemic situation
caused by pneumonia infected with the new-type coronavirus through non-profit social
organizations, the people's governments at or above the county level and their
departments or other state organs, such donations are allowed to be fully deducted from
taxable income,”; in South Korea “income tax deductions on individual spending between
1 March - 30 June 2020” have been increased for items such as “credit card spending:
from 15% to 30%, cash receipts/debit cards: from 30% to 60%, traditional market/public
transport: from 40% to 80%”; in Thailand, “withholding tax” for “service income” is reduced
from 3% to 1.5%; in Uzbekistan, “from 1 April to 1 October 2020, the minimal social tax
charge for individual entrepreneurs is reduced by 50%.” The Tax Foundation, an
“independent tax policy nonprofit” also provides international data on COVID-19-related
tax reliefs (see Enache et al., 2020).
Rationale of 6-Month Tax Reliefs: Flattening the Curve and Quick Economic
Recovery
The ECQ in the Philippines is meant to compel Filipinos to stay at home, as part of
collective efforts to “flatten the curve” – to slow down the transmission, the spread of
COVID-19, so as to enable its fragile and generally patchy health care system to cope up
with rising demands and limit the number of exposures and deaths, as much as possible.
Beyond checkpoints and curfews, financial/economic stability during this crisis would
further ensure that Filipinos will be staying at home and refraining from going out of their
houses that often. By offering its people six-month tax reliefs, coupled with SAP and other
existing aid and relief programs, the Philippine government would be sending a message
of hope and compassion that will give citizens a sense of security and stability. Estimates
point out to either an early COVID-19 peak (Rabajante, 2020) or a late peak (Bandoy,
2020) in the Philippines. Hence, six months of tax and other economic reliefs would have
to be the minimum, to immediately build the foundations for a quick post-COVID-19
recovery. At a time of global recession (Georgieva, 2020), developing countries like the

16
Philippines have no choice but to stimulate and bolster their people’s economic resiliency
through financial aid both direct and indirect.
Prospective Costings of Temporary VAT Suspension and Income Tax Waiver: Less
Than the Philippine Central Bank’s 300 Billion-Peso “Additional Support” for the
Philippine Government’s Fight Against COVID-19
Fiscal conservatives in the government might be lukewarm to any prospective loss of
revenue in a time of crisis, but feasible financing options exist if policymakers are willing
to be creative and innovative enough in responding to this unprecedented public
emergency that is already slowing down (if not entirely halting) the country’s economic
growth. The Asian Development Bank’s/ADB’s (2020) forecast for the Philippine GDP
growth is bleak (Figure 6) and Fitch Solutions (2020) says “we…forecast the Philippines’
current account deficit to widen, as a collapse in external demand outweighs the impact
of softer domestic consumption amid the Covid-19 (coronavirus) outbreak.” The
Philippine government’s own economic agency, NEDA (2020) provides a negative
preliminary assessment of the country’s COVID-19-era economy: “…given the
simultaneous adverse effects on the supply and the demand side of the economy, we
expect a cumulative loss of PHP428.7 to PHP1,355.6 billion in gross value added (in
current prices), equivalent to 2.1 to 6.6 percent of nominal GDP in 2020. Without
mitigating measures, this would imply a reduction in the Philippine’s real GDP growth to
-0.6 to 4.3 percent in 2020.” This is a time when inaction will not be an option, as the
national economy – just like the global economy – needs urgent and massive intervention,
without which, long-term downturn and/or stagnation looks imminent.
Figure 6. GDP Growth Forecasts for the Philippines
Source: ADB, 2020.
To effectively intervene in the economy, the Philippine government must be willing to
utilize all its available resources in helping its people be financially empowered to keep
domestic demand going if not rising. This is parallel with NEDA’s own prescription (2020)

17
for the Philippine government to have a “swift and appropriate response” aimed at
“softening the blow of COVID-19, particularly on the most vulnerable members of our
society.” A quick review of past tax revenues and BSP records will shed light on how to
finance VAT suspension and income tax waiver to put money on the pockets of both poor
and middle-class households.
In 2018, the Philippine Department of Finance/DOF data shows the government has
collected “Sales, License & Business Taxes/VAT” totaling 461,092,000,000 pesos.
Figures for 2019 and (at least in the pre-COVID-19 months of) 2020 could be theoretically
higher. Nevertheless, as only 2018 and 2017 figures are available, any researcher will
have no choice but to use it for a temporary projection of costings for a six-month VAT
suspension. On the average, that figure means a monthly collection of around
38,424,000,000 pesos. Hence, a six-month collection could be around 230,546,000,000
pesos. In 2017, as per DOF statistics, the government collected “Sales, License &
Business Taxes/VAT” totaling 437,156,000,000 pesos, of which 365.20 billion pesos are
from VAT (National Tax Research Center, 2018). Using the same sources, in 2017, VAT
collections from selected industries pertinent to this paper are as follows: Wholesale &
Retail Trade – 56.42 billion; Restaurants, caterers – 11.48 billion; Telecommunication
– 10.89 billion; Other services – 58.33 billion; Community, Personal & Household
Services – 14.92 billion; Others – 75.30 billion. Such VAT collections reached a total of
227.34 billion pesos, with a monthly average collection of around 18.9 billion pesos. A
six-month VAT suspension on items discussed in this paper would thus cost only
around 113.67 billion pesos and the actual cost could be lower
4
. Meanwhile,
according to BIR statistics for 2018, a total of 231,036,000,000 pesos were collected from
“Withholding on Wages.” Assuming a flat monthly average collection of 19.253 billion
pesos from such “withholding on wages,” a 6-month waiver of income tax collection
would cost only around 115.518 billion.
At this point, it is interesting to note that this paper’s main proposals – a 6-month
VAT moratorium on certain vital goods, and income tax waiver on wages/salaries
– would cost only an estimated 229.188 billion pesos, an amount 70.812 billion less
than the Central Bank of the Philippines’ 300 billion-peso “additional support to the
National Government to fight COVID-19” (BSP, 2020a). In view of the foregoing, it is very
practical to suggest that the BSP’s 300-billion-peso “additional support” be utilized for this
paper’s main proposals. After all, as of this writing, the government is yet to spend and/or
announce any spending plan for the said chunk of funding. Hence, the said amount can
be easily allotted and utilized to fund or “cover” the proposed 6-month VAT moratorium
4
VAT on utilities could be in “other services,” “community, personal & household services,” or “others.” Hence, the
final estimated figure for the prospective costing of temporary VAT suspension as discussed in this paper, WOULD
BE DEFINITELY LOWER. But the current estimate will do, as no further details or definition of such items are publicly
available as of now.

18
and income tax waiver. The Central Bank of the Philippines’ “additional support” could
thus be used to offset “revenue losses” from temporary VAT suspension and income tax
waiver. It could be compelled to shell out more money, if needed.
Unknown to many, the BSP showers big private banks with millions of virtually free
money, four to five times every month, through its “term deposit facility.” The BSP (2020b)
explains what the TDF is in this jargon-laden paragraph: “The BSP, like other central
banks, offers term deposits as one of the monetary tools to absorb liquidity. In November
1998, the BSP offered the Special Deposit Accounts (SDA) to banks and later expanded
the access in April 2007 to trust entities of banks and non-bank financial institutions. With
the adoption of the IRC system in 2016, the SDA facility was replaced by the term deposit
facility (TDF). The TDF is a liquidity absorption facility used by the BSP for active liquidity
management. Counterparties are asked to submit bids (volume and rate) for term
placements with the BSP. Currently, the BSP offers three tenors—seven, 14, and 28
days—in term deposit auction.” Simply put, the TDF is the BSP’s way of encouraging big
banks to park their excess money to the BSP – for a very short period of time (7, 14, and
28 days) – at a good interest rate. It’s really free money!
From its auction date on 06 November 2019 to 11 March 2020 (BSP, 2020c), the BSP
allowed banks to deposit a total of 2,184,799,000,000 pesos – for which those banks
received an estimated 116.133 billion worth of interest
5
. The BSP can certainly think of
ways to creatively utilize similar schemes to fund economic relief programs – such as
those described in this paper – that will directly help millions of poor and middle-class
Filipinos in this time of crisis. This is part of the process which mainstream progressive
economist Ann Pettifor (2017) describes as reclaiming democratic control over money
production. At a time when arguably, neoliberal capitalism is at weakest and socialism is
gaining ground as a result of the COVID-19 pandemic (see San Juan, 2020), it is tempting
to propose a wealth tax (see Sanders, 2020; Warren, 2020; Piketty, 2014 and 2020) to
finance such schemes, but given the current oligarchic influence if not dominance in
Philippine politics, that will be impractical at this time when our people need urgent aid.
Hence, without abandoning such egalitarian tax reform advocacy, this paper goes for the
painless and less politically explosive way of funding the proposed schemes, at least for
the purpose of swiftly achieving the outlined economic reliefs which the people badly need
now. Other financing options for such supplementary aid programs include budget
realignment, solidarity financing, and reverting to higher estate and donor taxes (Africa,
2020).
5
Computed using an interest rate of 4.1258% (the average of the figures for the “weighted average accepted yield”
for the period covered). The BSP does not provide any explanation on how to compute the actual interest earned
for deposits in its TDF facility. Absent such information, the computation provided in this paper was a simple
percentage computation (4.1258% of the 2,184,799,000,000 pesos which the big banks parked into the BSP’s TDF
facility for the said period).

19
Other Possible Ameliorative Measures Towards a People-Centered Economic
Recovery
Such funding sources should boost existing “immediate cash transfers and income
support schemes,” “as the crisis expands, and quarantine protocols linger…” (Dayrit and
Mendoza, 2020). But, as explained, supplementary measures are needed. Other possible
ameliorative measures for this crisis and as a springboard for a quick post-COVID-19
recovery include the following: one-year waiver of VAT on all residential and Micro, Small,
and Medium Enterprises (MSMEs) stall/space rentals to give citizens further financial
breathing space; long-term, interest-free loans for bailing out or establishing MSMEs to
nurture the proven pillars of the country’s job-building capacity (Figure 7); long-term,
interest-free –or even “negative interest rate” (Collinson, 2019) – loans for the
downpayment/equity payment of first-time home buyers to stimulate a home-building
boom that will also instantly create thousands of jobs; strings-free cash grants for
agriculture and/or food production projects aimed at increasing food self-reliance in both
rural and urban communities; international jubilee campaign for big institutional,
transnational creditors to cancel most of Third World countries’ debts (Gomes, 2020;
Wooden, 2020) in exchange for utilizing funds for post-COVID-19 economic recovery
and/or campaign for a temporary debt payment moratorium (both for principal and
interest payments, and including automatic debt appropriations) directed at local and
international creditors, for the same purpose. This is a time for big ideas. No option should
be taken off the tables, and options that favor people over profits, and communities over
corporations, should certainly be prioritized.
Figure 7. Contribution of Establishments to Total Philippine Employment
Source: PSA, 2018.

20
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