DoF: Revenue-to-GDP ratio to pick up by ’13

MANILA, Philippines—The Department of Finance plans to improve the government’s revenue-to-GDP [gross domestic product] ratio to attain pre-Asian crisis levels by 2013.

Finance Secretary Cesar Purisima said that by then, the ratio would have reached 17.1 percent, comparable to the ratios seen before the Asian financial crisis that struck the region in the late 1990s.

Purisima added that by 2016, the ratio could reach 19.6 percent.

Currently, the ratio stands at nearly 13 percent.

The Philippines aims to improve its credit rating to investment grade over the medium term, or before the term of President Aquino ends in 2016.

Credit-rating firms point to the country’s relatively low revenue-to-GDP ratio as a key factor behind the Philippines’ existing credit standing.

Revenue-to-GDP ratio, a closely watched indicator, is the value of the government’s revenue collection—both tax and non-tax—relative to the country’s overall output.

A high ratio indicates strong ability of the government to increase revenue collection as the economy grows and people and businesses earn more.

A low ratio reflects government inefficiency in revenue collection.

The ratio is used by credit-rating firms as a gauge of a government’s ability to pay maturing debts and meet other financial obligations.

Purisima expressed confidence that the revenue-to-GDP projections would be attained over the medium term, citing the government’s intensified efforts to go after tax cheats.

“The fear factor is working,” he told reporters.

Every week, the Bureau of Internal Revenue files tax evasion cases to encourage the public to settle their tax obligations.

Purisima said getting an investment grade for the Philippines is possible within President Aquino’s term.

Currently, the Philippines is rated three notches below investment grade by Moody’s Investors Service, and two notches below the desired grade by Fitch Ratings and Standard and Poor’s.