Value-added tax (VAT) for many is considered to be the best form of
general indirect consumption tax. VAT is an indirect tax, in that the
tax is collected from a person or entity that does not bear the entire
cost of the tax. It is levied on the added value that results from each
exchange in the process of delivering a final product to the consumer.
To avoid double taxation on final consumption, exports (which by
definition, are consumed abroad) are usually not subject to VAT and VAT
charged under such circumstances is usually refundable. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer.
Whether the VAT is the best way to respond to a shortage of revenue is widely debated. In the Philippines, serious questions about sufficient collection, administration, applicability, and impacts, especially on the poor, have all fueled a myriad of views on the subject. To add to this, serious reservations of tax policies in general arise through criticisms about the lack of integrity within the government. Recent tax reforms in the past few years, including exigency measures of expanding the VAT base to include petroleum and other energy products as well as selected services (EVAT) and increasing the VAT rate from 10 percent to 12 percent (RVAT) have been especially controversial given recent increases in the prices of certain commodities.