As it ramps up spending, Philippines urged to broaden tax base

MANILA, Philippines — The Philippine government’s plan to ramp up spending on public goods and services, especially infrastructure, should be coupled with measures to bolster tax collection, UK-based Oxford Economics said.

“Asia emerging markets with a large informal economy (such as in India, Indonesia and the Philippines) should broaden their tax bases and improve their tax compliance (such as Indonesia’s tax amnesty in 2016-17; India rolled out GST [goods and service tax] in 2017),” Oxford Economics economist Tommy Wu said in an April 16 report titled “Rising fiscal expansion is structural.”

In the Philippines, the first package of the Duterte administration’s comprehensive tax reform program was already passed into law last year – the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which reduced personal income tax rates but hiked excise taxes on purchases of oil products, vehicles, cigarettes, and sugary drinks.

President Rodrigo Duterte also green-lighted tax amnesty on deficiencies and estate tax amnesty this year to generate an additional P27.54 billion.

The President, however, vetoed the provision on general amnesty from Republic Act (RA) No. 11213 or the Tax Amnesty Act of 2019, which would have raised P6.82 billion from unpaid taxes, pending the lifting of bank secrecy for tax purposes.

Also pending in Congress were tax packages covering corporate income taxes, mining taxes, and “sin” taxes, among other new or higher levies in the pipeline.

Wu noted that “many Asian economies are running expansionary fiscal policies this year to either counter weakening growth momentum or garner electoral support.”

The Philippines, for instance, will hold its midterm elections on May 13.

“Beyond the near term, we think many [Asian economies] could see a structural increase in government spending given the backdrop of ageing populations, rising demand for public services and the need to invest in future competitiveness,” Wu said.

But in the case of the Philippines and India, even as their respective populations were not ageing rapidly, Oxford Economics said government spending in these two countries was still expected to increase.

The Cabinet-level, interagency Development Budget Development Committee (DBCC) had programmed the 2019 budget deficit with a wider cap equivalent to 3.2 percent of gross domestic product (GDP) or P624.4 billion as the government intends to build more infrastructure and finance the Duterte administration’s priority programs and projects.

Disbursements had been programmed to amount P3.774 trillion this year, P4.21 trillion next year, P4.697 trillion in 2021, and P5.211 trillion in 2022 after expenditures jumped by a fifth to P3.408 trillion last year.

As for revenues, the government wanted to collect P3.15 trillion in tax and non-tax revenues this year, up by a tenth from P2.85 trillion last year.

The share of revenues to GDP hit 16.4 percent last year and was seen attaining the same level this year.

The government plans to further increase its revenue effort to 17.2 percent of GDP by 2022.

For 2019, DBCC had said TRAIN Law and package 1B sans the e-receipts program scheduled to be piloted in 2020 will generate P162.2 billion.

Over the medium term, collections from TRAIN Law were projected to average P214.5 billion.

As such, total revenues were expected to further increase to P3.573 trillion next year, P3.985 trillion in 2021, and hit P4.438 trillion in 2022.