OFW Remittances Not Covered By Government’s Tax Reform Plan

Overseas Filipino workers can continue to send money to families back home without worrying about getting taxed as the administration’s proposed Comprehensive Tax Reform Program will not include remittance money, the Department of Finance said.

In a statement, DOF noted that Undersecretary Karl Kendrick Chua clarified in two separate congressional hearings that the Duterte administration has no legal jurisdiction over money transfers coming from overseas.

It added that Chua made a response to a wrong report that OFW remittances would be taxed under the first package of the CTRP.

The government, Chua said, has jurisdiction only over domestic remittances, which are not actually taxed as the value-added tax, and is not imposed on the amount of money involved but only on transfer fees charged by money transfer companies.

“We have to distinguish between foreign and domestic remittances. Those coming from abroad are not within our tax regime, so that is not covered under the CTRP,” Chua said.

Under existing tax laws, transfer fees in domestic remittances have long been subjected to the VAT but are not collected fully by the Bureau of Internal Revenue.

“Let me be clear, it’s not a VAT on remittance, it is VAT on the money transfer like all other services which has been VAT-able from before,” Chua noted as reported by GMA News.

In order to plug the loophole, legal and tax experts have agreed that because the transfer fees are not explicitly exempted from VAT under the National Internal Revenue Code, such fees must be subjected to the consumption tax, Chua said, adding that the DOF has been advised by the BIR that it is not necessary to amend the Tax Code to implement this, and that a revenue regulation is all that is required to remind companies that transfer fees on domestic remittances are VAT-able.

The Lower House approved House Bill 5636 or the Tax Reform Acceleration and Inclusion Act by a 246-9 vote with one abstention. It consolidated DOF’s original proposal — House Bill 4774 — with 54 other tax-related measures aiming to cut personal income tax rates and adjust excise taxes on certain products while broading the VAT base as compensating measure for possible revenue loss.