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CHAPTER 1

Background of the Study

The implementation of Reformed Value Added Tax is very essential for the

government’s search new sources of revenues. The effect of the Value-Added Tax will trigger

the basic commodities and will impose heavy burden on consumers if the problem will not be

addressed.

In the United States of America, according to Bonfield (2005), tax has no difference to an

increase in a cost of inputs. When the company incurs higher cost in producing goods and

proving services they raise the price on their products and services to gain profits.

On the other hand, DOF (2017) reported that Philippines was considered as one of the

countries that impose highest VAT rates and also have the highest number of exemptions in

Southeast Asia region. Consequently, the Philippines collect same amount of VAT revenues as

Thailand despite imposing 7 percent VAT rate, while the Philippines is at 12 percent. Tax

exemptions have created much confusion, complexity and discretion in the tax system resulting

to tax evasion, corruption and etc.

TRAIN Law (2017) stated that to address these problems on December 29, 2017,

President Rodrigo Roa Duterte signed into law Republic Act No. 10963 or also known as Tax

Reform for Acceleration and Inclusion (TRAIN) Law which aims to established an efficient

system that will make the rich contribute more to fund government’s services and programs for

the poor.

Furthermore, DOF (2017) emphasized that under the TRAIN a simplified VAT system is

created to make it more fair and simple and lower the cost of compliance for both the taxpayers
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and tax administrators. These foreseeable results can be achieved by limiting Vat exemptions to

some necessities such as raw agriculture food, education and health.. In contrast, this does not

mean the poor’s benefits will be removed. It lets budget be use to provide target transfers and

programs that are more transparent and accountable.

Tochukwu, Jerry and Titus (2015) argued that an unexpected adverse effect was seen in

this law. Consumption spending or consumption or consumption expenditure may be viewed as

the total demand for all consumer goods and services Dela Paz (2018) supported the claim of

Tochukwu et. al, (2015), by implementing TRAIN Law, personal income taxes are reduced but

increased on those cars, tobacco, sugar-sweetened beverages, and fuel. When TRAIN law was

official and has taken effect in January 2018, it was expected that consumer spending growth to

pick up as employees were expected to receive higher take home pay. Six months have passed,

the expected household surge in spending was the opposite; spending growth actually slowed

slightly from a year ago. In the first half of 2018, household final consumption expenditure grew

only 5.7 percent the same periods a year ago. The results showed that the last year’s growth is

slightly higher – 5.9 percent than the current year. "I don’t think TRAIN provides significant

impact to an average wage earner. It is like the government is just giving us a new perspective to

look at our taxes. You have a higher pay, but electricity, transport, grocery bills will also be

higher " – Agapito

An interview conducted by Lopez (2018) with theSocioeconomic Planning Secretary

Ernesto Perniarevealed that rising of inflation is to be blamed for the ccontinuous decrease on

consumer’s spending growth. In July, consumer prices were way above

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BangkoSentralngPilipinas target of 2 -4 percent per year; consumer prices rose by a 47- month

high of 5.7 percent. "Inflation would have damned consumption to some extent."- Pernia

Rey (2018) stated that the Department of Social Welfare and Development (DSWD)

started giving P2, 400 subsidies to 10 million poor families and 733 indigent senior citizens to

help the offset impact of the tax reform law. The P2, 400 was (P200 per month) the annual total

financial assistance given by the government to poor households, to curb the effects of higher

prices due to TRAIN Law. DSWD assured the poor families that the institution will provide

sustainable aid to help them cope with effects of TRAIN.

The study was conducted so that many of the consumers will be aware of the possible

reaction of other consumer on the reformed VAT. The study is focused on the perception of

consumer on the newly implemented VAT or known as Reformed VAT.

Statement of the Problem

The study aims to determine the perceptions of the consumer on the Reformed Value Added Tax

(RA 10963). These problematic situations include the researcher to investigate the following:

1. Determine the level of perception of consumer on the Reformed VAT in terms of:

1.1 Goods and Properties

1.2 Imported Good

1.3 Sale or Exchange of Services

2. To determine whether there is a difference in their perception based on sex.

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Theoretical Lens

The study is anchored on the proposition of Aban (2001) "Theory of Necessity" which

stated that taxes proceed upon the theory that existence of the government is a necessity; that it

can not continue without the means to pay its expenses; and that or those means, it has the right

to compel all citizens and property within its limits to contribute.

This is also being supported by the Benefits-Protection theory by Aban (2001) that the state

demands and acquired taxes from the subjects of taxation within its jurisdiction so that it may be

allowed to carry its mandate into effect and perform the function or purpose of the government,

and the citizens pays from his property the portion demanded in order that he may, by means

thereof, be secured in the enjoyment of the benefits of organized society.

In addition, according to Chandler (2005) imposing high prices and heavy taxation will lead to

war and destroy the society. Also supported by Marshall (2005) affirmed that the power to tax

involves the power of destruction.

Conceptual Framework

INDEPENDENT VARIABLE MODERATOR VARIABLE

Perception of Consumers on the

Implementation of Reformed-
Value Added Tax (RA `10963) POITICAL DISTRICTS

1.1.Goods and Properties

1.2.1.2 Imported Goods
1.3.1.3 Sales and of Sevices

Figure 1. Schematic Diagram of the Study

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Importance of the Study

Delimitation and Limitations

This study will be conducted in different districts in Davao City, Philippines specifically

in District I, District II and District III in Davao City. The one hundred fifty (150) participants

will be randomly selected by the researchers. Each district has fifty (50) participants as a

respondent and at the same time the consumers. The fifty (50) participants represent the 33.33%

as of percentage in each district. This study is limited only in consumers of the said districts. The

result of this study is not generalized since we have a very few participants.

Definitions of Terms

For clarity purposes the researchers provides some terms that are defined conceptually

and operationally.

Perception according to Joseph Reitz perception is a process that includes all the senses

of an individual that receives all information about the environment. Perception is the

understanding and knowledge of an individual occurs doing the perceiving.

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Value-added tax VAT it is an indirect tax of consumption that is levied on the sale, barter

or exchange on importation of goods. Their feature is to charge and collect tax throughout the

production or distribution process.

Consumer is the one who is using the products or services they buy. According to

Kimberlee Leonard when you buy something you are the customer but when you literally

consume it by eating, drinking or using it then you are a consumer.

Review of the Related Literature

This section presents the review of related literature and related readings that has a

relation to the study which the researchers came across during the conduct of the study.

THE REFORMED VALUE-ADDED TAX (TRAIN LAW)

Organization for Economic Co-operation and Development (OECD,1996) defined tax as

a compulsory, unrequited contribution to the general government which consists of supra-

national authorities excluding pubic enterprise. Taxes are considered unrequited because the

benefits provided by the government to regular tax payers are normally not in proportion to their

payments. Valencia (2001) added, tax is an amount, all funds or income derived by the

government whether from tax or from other sources such as financial assistance from another

government, donations from private individuals, commercial revenues and services produced by

the government owned enterprise and administrative revenues like penalties and forfeitures.

According to Edame and Okoi (2014) as stated by Saidin, Basit, Hamza (2016), tax is the

main source of government revenue primarily collected for development purposes. Department

of Finance and National Tax Research Center (DOF and NTRC, 2015), enumerates the

distribution of taxes on education, health and nutrition, social security and welfare, employment,

housing, roads and transportation, agriculture, agrarian reform and environment, water supply
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and flood control, power and energy, trade and industry, defense and public safety and public

services during the former President Benigno Simeon Aquino. On education, 37,761 public

preschools, 38,604 public elementary schools and 7,972 public secondary schools were

constructed; scholarship programs of Department of Science and Technology (DOST),

Commission on Higher Education (CHED) and TESDA Training for Workshop Program were

funded and school-based feeding programs were conducted to improve the student’s nutritional

status. Meanwhile, 2,581 rural heath units and 19,943 barangay health stations were provided;

medical missions organized by the Department of Health (DOH) are launched to assist the public

and about 2.1 million children were fully immunized against various communicable and non-

communicable diseases. On the sector of social security and welfare, social welfare institutions

for childcare, women, PWD’S and elderly persons were established; Community Based Capacity

Building Program was conducted to improve the participant’s socio economic status and

PantawidPamilyang Pilipino Program (4Ps) was implemented with a budget of P189.9 billion.

182,573 youths were provided employment assistance by Department of Labor and Employment

(DOLE). On the other hand, the housing sector provided permanent homes to 222,789 low-

income families amounting to P58.92 billion. Road widening projects, airports and mass transit

railways were also given attention. Department of Agriculture (DA) had a budget of P52.7 for its

programs that seek to increase the productivity and income of farmers and fishermen. Moreover,

a total of 878 local water districts are now providing rural folks with portable water. On the

sector of trade and industry, it has been reported that there is an increase in exports due to trade

promotions through trade events for both local and international products. These are few of the

developments provided by the government to the Filipino citizens through the implementation of
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tax. Martinez-Vazquez (2011) supported, if tax revenue is lessen, the government will face

difficulties to spend in critical areas for both economic growth and development of the country.

Aban (2001) emphasized the following taxes collected by the national government :

estate and donor’s taxes, income tax, value added tax, exercise tax, mining taxes, customs duties,

documentary stamp taxes, and national taxes under special laws taxes on insurance companies,

finance companies, taxes on firearms, taxes on banks and travelers tax. Community tax,

municipal licenses taxes, professional taxes and real estate tax are taxes collected by the local

government.

In contrast, tax is seen as a burden to the society which was a reason why people fled

from their obligation to pay tax. Furthermore, in terms of goods and services, it is the cause of

increasing price value.

According to Ismail (2017), Value Added Tax, (VAT), is a form of consumption tax.

From the buyer’s perspective, it is a tax on the purchase price, whereas, from the seller’s point of

view, it is a tax only on the value added to a product, material or services. Income generator for

covering the government expenses, stability, minimizing tax evasion, the ease of auditing

control, disciplined trade, improving foreign trade, rebuilding the economy, effective support,

minimum negative effect on the allocation of resources, facilitating the entrance to regional

protocols, resolving negative effects of taxation on economy and etc. are few advantages of

value-added tax system. However, value-added tax has also its disadvantages such the increase

of prices and practical difficulties of implementing VAT (calculating VAT of retailers and small

professional jobs).
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COMPRHENSIVE VAT SYSTEM ON TRAIN LAW

VAT THRESHOLD: VAT registration threshold increased to PHP3m. Lease of

residential unit exemption threshold increased to PHP15, 000 and no longer subject to automatic

adjustment.Threshold for VAT-exempt sale of residential lot reverted to PHP1.5m. However, RR

No. 13-2018 recognizes the adjusted threshold in 2011 which is PHP1.9m. Threshold for VAT-

exempt sale of house & lot and other residential dwellings reverted to PHP2.5m. RR No. 13-

2018 recognizes the adjusted threshold in 2011 which is PHP3.2m.Beginning 2021, threshold of

VAT-exempt sale of house & lot and other residential dwellings will be reduced to PHP2m and

sale of low-cost housing and sale of residential lot will be subject to VAT.

VAT ZERO-RATED SALE OF GOODS/ SERVICES: VAT zero-rating on the

following: Sale and delivery of goods to registered enterprises within separate customs territory

and within Tourism Enterprise Zones (TIEZA).Services rendered to registered enterprises within

a separate customs territory and registered enterprises within TIEZA.

ADDITIONAL VAT EXEMPTIONS: Sale or lease of goods and services to senior

citizens and persons with disabilities. Sale of medicines prescribed for diabetes, hypertension,

and high cholesterol (beg. 2019). Sale of gold to BSP.Transfers of property pursuant to Section

40(C)(2) of the Tax Code. Association dues, membership fees, other assessments and charges

collected by homeowners’ association and condominium corporations.

Organization of the Study

This study is organized and arranged for convenience and easier access for the readers.

The succeeding parts include a comprehensive representation of the chapters and discussion of

the organization of the study.

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This research is subdivided into 2 chapters as follows:

Chapter 1: contains the purpose of the study, research questions, theoretical lens,

conceptual framework, importance of the study, delimitations and limitations, definition of

terms, review of related literature and organization of the study.

Chapter 2: includes research design, data source research, research participants,and data

analysis.
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CHAPTER 2

Methodology

In this chapter deals with the discussions of the research design, subject of the study,

research instrument, data gathering procedure, and the statistical treatment of the data used in the

perception of consumer on value added tax.

Research Design

The researchers will use the descriptive survey method to determine the perception of the

consumers in the implementation of Expanded Value- Added Tax in district I, district II and

district III. The researchers will make a draft of the possible questions that would be use

regarding Expanded Value Added Tax in accordance with the content of RA 9337. The

researchers will improve some part of the questionnaire based on the correction of the adviser.

The tool that will be used is the survey questionnaire.

Research Instrument

The researchers will make use of descriptive survey method to determine the perception

of the consumers in the implementation of Expanded Value Added Tax. In district I the

researchers will distribute the questionnaire in Barangay Sandawa and some portion from the

area that are part of district I. More over in district II, the researchers also sought the approval of

the barangay captain in barangay Cabantian and barangay Buhangin and later mange the

materials. In district III, the researchers also have an approval of the barangay captain in

barangay Bangkal to conduct the study in areas that part of the district. The researchers will

gather the questionnaire and if lucky enough will collect same number of questionnaire.

The perception of consumers on the implementation of Expanded Value Added Tax

Analysis survey uses the 5-4-3-2-1 Likert scale in the responses.

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Below are the numerical ratings, descriptive ratings and numerical equivalent.

Numerical Ratingss Descriptive Ratings Numerical Equivalent

5 Very High 4.5-5.0

4 High 3.5-4.49

3 Fair 2.5-3.49

2 Low 1.5-2.49

1 Very Low 1.0-1.49

The average mean in every categorized tells the level of perceptions of consumers on the

Implementation of Value Added Tax here in Davao City.

Research Participant

The subject of this research study is the one hundred fifty (150) consumers of the district

I, district II and district III of Davao City. The consumers will be randomly pick, fifty (50) of

them will be selected as the respondent of each districts and considered as the consumer of every

districts which represent the 33.3% and totaled to one hundred fifty (150) or one hundred 100%.

In table 1 shows the distribution of respondents.

Table 1

Frequency Distribution of Respondents

Districts Sample Size Percent (%)

District I 50 33.3
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District II 50 33.3

District III 50 33.3

TOTAL 150 100

Data Collection Procedure

The following procedures will be conducted by the researcher.

Permission to Conduct a Study. The researcher will make a permission letter to conduct

this study, and sought the approval by the Dean Esterlita Gevera and the adviser Professor

Fabiana Opundulan.

Distribution and Retrieval of Questionnaire. After the approval that sought by the

dean and professor, the researcher will administer the questionnaire in one hundred fifty (150) or

one hundred 100% of the said respondent from district I district II and district III.

Data Analysis

After the retrieval of questionnaires, the researchers will make a tally sheet which

indicates the figures coming from the gathered data in every indicator. The data gathered will be

presented to the statistician. After that, the gathered data will be interpreted and analyze to draw

findings and to answer the sub- problem of the study.

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REFERENCES:

Aban, B.B. (2001). Law of Basic Taxation in the Philippines. Callocan City Philippines.

Bonfield, C. (2005). BigOil Isn’t the Problem. Retrieved from: https://www.boneboard

.com/BigOil.html.

Dela Paz, C. (2018, January 9). Explainer: How the tax reform law affects Filipino

consumers(Web log post). Retrieved from https://amp.rappler.com.

Department of Finance. (DOF, 2017). Package One-Smplified Value Added Tax (VAT) system.

Retrieved from: https://www.dof.gov.ph.

.Department of Finance and National Tax Research Center. (DOF & NTRC; 2015, June). Where

Does Your Tax Money Go? Retrieved from: https://www.ntrc.gov.ph.

Ismail, R. (2-17, January). Value Added Tax (VAT)- in View of Bangladesh (Doctoral

Disseration, University of Bangladesh). Retrieved from:

https://www.researchgate.net/publication/313375315/download.

Lopez, E.C. (2018, August 15). Under TRAIN Law, Consumer Spending Was Supposed To

Grow Faster. Here’s What Really Happened (Web log post). Retrieved from:

https://www.entrepreneur.com.ph.

Martinez-Vazquez, J. (2011). Taxation in Asia. Asian Development Bank. Retrieved from:

https://www.adb.org/sites/default/files/publication/28890/taxation-asia.pdf.

Organization for Economic Co-operation and Development (OECD, 1996). Lecture 1: The

definition of taxes and tax rules, types of progressivity of taxes. Retrieved from:

https://gkula@wne.uw.edu.pl.

Republic Act No. 10963(Tax Reform for Acceleration and Inclusion(TRAIN Law).

Rey, A. (2018, June 15). DSWD chief: P2,400 subsidy is not enough to shied poor from Ttrain
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impact. Retrieved from: https://amp.rappler.com.

Saidin, N.A.B; Basit, A. and Hamza, S. M.(2016, November). The Roe of Tax on Economic

Growth. 232-243. doi: 10.24324

Tochukwu, O., Jerry, K. & Titus, O. (2015, jUNE). Valued Added Tax and Consumption

Expenditure Behaviour of Households in Nigeria: An Empirical Investigation. Retrieved

from: https://www.researchgate.net/publication/299585242.

.Valencia, E.G. (2001). Income Taxation. Principles and Laws with Accounting Applications

Aurora Hid Baguio City Philippines. Retrieved from:

https://www.asiaweek.com/asiaweek/96/0101/ed2.html.

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