Chamber of Real Estate & Builders' Associations, Inc.

A Home for Every Filipino

VAT on Low-Income Housing: An Anti-Poor Measure

The Value-Added Tax was first adopted in the Philippines on 25 July 1987 when then President Corazon Aquino promulgated Executive Order (EO) No. 273 pursuant to her emergency powers. The EO pegged the VAT at 10%.

Five groups including the labor organization Kilusang Mayo Uno petitioned the Supreme Court to nullify EO 273 on various grounds. The Court, finding no constitutional infirmity, denied the petitions.

Republic Act 7716

CREBA’s own battle against the VAT began in May 1994 when the Expanded VAT Law (RA 7716) was enacted to restructure the VAT and widen its tax base. The Chamber, along with ten other petitioners including noted constitutionalists and former Senators Arturo Tolentino and Raul Roco, mounted a constitutional challenge to have the law nullified.

 The Chamber contended among others that the law was excessive and confiscatory, in violation of the “due process” clause of the Constitution. CREBA propounded that a 10% VAT on gross receipts, over and above the 35% tax on net income, if absorbed by the seller, would deny him a fair return on investment or result in unrecoverable loss. On the other hand, if only an output VAT of 5% were passed on to the buyer, the domino effect would result in at least a 27% spike in the price levels.

CREBA initially scored a victory when its motion for a temporary restraining order (TRO) was granted by the Court, whereas those of the nine other petitioners were not.

The euphoria of the CREBA members, however, was short-lived. Eventually, in the consolidated case G.R. No 115455, the Supreme Court denied all petitions. In relation to CREBA’s petition, the Court held that the issues were “prematurely raised”, and that there was no “factual foundation of record” proving the claim that the law was regressive, oppressive and confiscatory.

Republic Act 9337

Later in 2005, RA 9337 amended the internal revenue code. This law granted VAT-exemption to low-cost and socialized housing under RA 7279, as well as residential lots valued at P1.5 Million and below, and house-and-lot and other residential dwellings valued at P2.5 Million and below. The law also provided that those values were to be present-value adjusted based on the Consumer Price Index every three years starting January 2009.

With the provision in RA 9337 that the VAT shall be increased to 12% starting January 2006, and the government’s plan to raise petroleum tariff by 2%, CREBA advocated the legalization of jueteng instead, as a non-inflationary tax measure. CREBA estimated that a 25% jueteng tax would generate for the government P164 billion annually, compared to only P54 billion projected to be raised out of the hiked VAT and petroleum tariff combined.

However, no action was taken on the proposal. Instead, the government proceeded with the VAT hike in 2006.


In December 2016, the housing industry went into spasms when Albay Representative Joey Salceda filed House Bill 4688, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN), which provided for the total removal of those exemptions.

CREBA’s strident calls and unceasing representations with Congress resulted in a concession which gave the industry a reprieve. Under RA 10963 enacting the TRAIN Law, the exemptions under RA 9337 were retained, but subject to the provision that effective 01 January 2021, the exemption will apply only to house-and-lot and other residential dwellings valued at not more than P2 Million.

Unrelenting, CREBA continued with massive efforts to raise the exemption thresholds. In its appeal to Congress, CREBA said:

The TRAIN Act of 2017 declares a policy of providing “equitable relief to a greater number of taxpayers and their families in order to improve levels of disposable income and increase economic activity.”

Pursuant thereto, Section 34 of the Act provides that residential lot valued at P1.5 Million, and residential house and lot valued at P2.5 Million and below, are VAT-exempt. These thresholds are to be present-value adjusted every 3 years.

These exemptions no  doubt recognize that every peso of VAT on housing is a peso added to the cost of home acquisition; that particularly for low-income earners, this means a peso less for food, transportation, utilities, education, medicine and other primordial needs.

The provision for threshold adjustment every 3 years also no doubt recognizes that the cost of land and housing development, and consequently the price of housing packages, continually skyrocket while wage increases tend to lag far behind the price increase of all commodities.

Yet, the same Section 34 removes the exemption for residential lots, and reduces the threshold for residential house and lots to only P2 Million, effective January 1, 2021. It would seem embodied in this proviso an expectation that in 2021, the price of housing packages will miraculously dive, that decent low-income housing at P2 Million will be possible where it is at present near-impossible, and that low-income earners will thus no longer need equitable relief.

Such expectation would seem unreasonable in the face of the following realities:

1.    Every Filipino, more so the low-income earner, desires to own a decent home; but even with low cost home financing or interest subsidy, acquiring one at prices bloated by VAT – at whatever percentage – is far from possible. An independent study by the PIDS states that food and housing expenditures combined represent 70% to 80% of household income, which leaves only a small amount for expenditures on other basic needs.

There appears to be no reason to expect this situation to change in the near future. Add VAT to housing expenditures, and the residual 20% to 30% becomes even less.

2.    By necessity, to save on transportation cost, homebuyers seek to acquire housing near their place of employment, which is usually in highly urbanized areas like Metro Manila. Yet, decent housing at less than P3 Million is no longer possible in these areas or the suburbia due to scarcity and high cost of land.

A P2-Million house-and-lot unit may still be possible far from urban centers – say, San Miguel, Bulacan. However, for a low-income earner working in Pasig or Makati, transportation costs combined with the monthly amortization would render purchase in these areas non-viable.

For someone earning only P25,000 per month, with four mouths to feed and a child in school, the arithmetic is simple: 

Place of Work: Pasig

Housing Location: San Miguel, Bulacan

Housing Price: 2,000,000

Est. Monthly Amort.: 17, 392

Monthly Transpo: 8,648

Total: Amort. & Transpo: 17,392

Monthly Salary: 25,000

Residual Income: 7,608

Clearly, for this family, affordability is already a grave issue. What more when VAT is added to the arithmetic?

3.    Low-income housing can only be acquired at long-term installment. Under the present scheme, VAT is applied not only to the price component, but also to interest and penalties, thus compounding the deleterious impact.

It should be thus clear that reducing the exemption threshold from the present adjusted levels will not provide the “equitable relief” contemplated by the TRAIN Act. Nor does it serve the policy enunciated in Article XIII of the Constitution, to wit:

“The State shall, by law and for the common good, undertake, in cooperation with the private sector, a continuing program of housing and urban development which shall make available at affordable cost, decent housing and basic services to underprivileged and homeless citizens in urban centers and resettlement areas. It shall also promote adequate employment opportunities to such citizens”.

Collaterally, it may be unreasonable of Government to expect the cooperation of the private shelter sector in building homes for low-income families, when the VAT would preclude these families from affording home acquisition in the first place. In all probability, the sector will simply shift to the Open Market paradigm – building only for those who can afford to buy without Government’s magnanimity.

On the other hand, maintaining the VAT exemption thresholds for housing at more reasonable levels will not necessarily mean a loss to Government, as the revenue foregone may very well be offset by increased tax revenues from the shelter sector’s 65 downstream industries, whose businesses can be expected to expand with increased activity in low-income housing development.

The TRAIN Act aims to promote sustainable economic growth. Surely, there are other ways of achieving this – ones that do not impose greater burdens on the less fortunate.



CREBA’s arguments apparently convinced Congress. In February 2021, both the Lower House and the Senate passed RA 11534, otherwise known as the “Corporate Recovery and Tax Incentives for Enterprises Act” or “CREATE”, wherein the exemption thresholds were raised to P2.5 Million for residential lots and P4.2 Million for house-and-lot and other residential dwellings.

Unfortunately, in signing the Act into law, President Rodrigo Duterte vetoed the increased thresholds, saying that it “will benefit even those not originally targeted for the VAT-exemption – those who can actually afford proper housing. This results in a tax exemption that is highly distortive and exacts a heavy price on the taxpaying community.”

The President also said that “if not vetoed, the estimated revenue loss from the foregoing is P155.3 billion from 2020 to 2030, which could be used in public goods to benefit the poor directly.”

The fight goes on.