Reforming the country’s tax regime, which currently exempts the rich but overburdens ordinary citizens, will be key to sustaining high economic growth rates that promises to cut poverty significantly over the next decade.
The World Bank said that changes in the way people are taxed should emphasize lower rates for a bigger portion of the population. Unfair and often permanent exemptions enjoyed by corporations, even as these book huge profits, should be removed, its officials said.
Higher revenues should help cover the need for more investments in infrastructure, healthcare and education to ensure the country’s consumption-led economy does not bog down in the coming years.
“Historically, the Philippines underinvested in physical capital and even more so in the last decade… that manifests in traffic jams, flight delays and power shortages,” World Bank senior economist for the Philippines Karl Kendrick Chua said at a briefing Wednesday.
The government still needs to spend close to P1 trillion on vital infrastructure in the medium term to catch up with its neighbors. This investment gap of roughly P950 billion—the equivalent of 6.8 percent of gross domestic product (GDP)—can raise the economy’s potential capacity to expand.
Earlier this week, the World Bank announced that it had cut its growth forecast for the Philippines in 2015 to 6.5 percent from the previous projection of 6.7 percent. The rest of Asia Pacific, meanwhile, is expected to grow by 6.9 percent.
Last year, the economy likely grew by 6 percent, slower than the multilateral lender’s previous forecast of 6.4 percent. This falls short of the state’s target for the year of at least 6.5 percent. Growth will improve this year due to lower oil prices, which frees up more money to be spent on other products. Stronger demand for the country’s exports and higher government spending will also boost output.
Even with its muted pace, the country’s growth would continue to bring down poverty levels in the country, officials said, citing latest income and employment reports by the government that showed the most significant improvements in a decade.
Latest data indicated that unemployment in the country fell to 6 percent at the end of October following the creation of a million new jobs in the 12 months preceding the report. Poverty incidence also fell to 24.9 percent at the end of June 2013, down 3 percentage points from the previous survey in 2012.