MANILA — The Philippines has “a lot of space” to cut its budget deficit without resorting to new or higher taxes, the World Bank (WB) said, adding that collection efficiency through digitalization and removal of some value-added tax (VAT) exemptions would go a long way.
Gonzalo Varela, lead economist for Philippines at World Bank, told reporters on Wednesday that the Marcos administration can complement better tax administration with more efficient spending to achieve its goal of bringing the fiscal deficit, as a share of the economy, back to prepandemic levels much sooner.
Varela said tax rates in the Philippines were “relatively high” already compared to other countries like Vietnam, where levies are low but collection is nevertheless high.
Collection efficiency
“I think the point here is that you can increase your tax collection without increasing the rates through better tax administration,” Varela said.
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“So there are important reforms to be made on the tax administration side that will help accelerate the process of fiscal consolidation and reach the targets that have been announced by the government,” he added.
The Washington-based multilateral lender’s recommendation is in line with the strategy of Finance Secretary Ralph Recto, who is avoiding new taxes and is banking on better revenue collection instead to improve the state’s fiscal health.
READ: PH gov’t swings back to budget deficit
Deficit-to-GDP
But the finance chief admitted that improving revenue generation would take time, as the government would have to digitalize its system so it can catch up with the rapid growth of e-commerce, from which taxmen are having trouble collecting revenues.
Based on latest government forecasts, it is only in 2027 that the deficit-to-gross domestic product is expected to return to prepandemic level at 3.2 percent.
Under Recto, the Department of Finance is pushing for the passage of its “refined” priority tax measures in Congress, which include the proposed value-added tax on digital service providers; the imposition of excise tax on single-use plastics; and Package 4 of the Comprehensive Tax Reform Program.