Comprehensive tax reform good for Philippines – IMF

MACTAN ISLAND, Cebu, Philippines  — A comprehensive tax reform which eases the burden on workers could be a good option for the country, but only if this would rake in more revenues for the government, the International Monetary Fund said.

Shanaka Jayanath Peiris, IMF resident representative to the Philippines, said in a briefing here that since the Philippines tax effort ratio is relatively low compared to its neighbors, the government should consider reforms that would increase revenues so there are more funds for public investments.

“There are lots of exemptions and the rates are quite high so we could have much more broadening of the tax base while lowering rates,” Peiris said.

He explained as with previous IMF reports on the Philippines, the government should consider reforms on tax incentives to further broaden its revenue base rather than directly raising taxes.

“A comprehensive approach would seem the best way (to address this) but the question is in the details because we want it to be at least revenue enhancing,” he said.

The country’s tax effort when measured against GDP climbed to 14.09 percent as of June from 13.69 percent in the same period last year, latest available data from the Department of Finance showed.

The revenue to GDP ratio, meanwhile, also improved to 17.13 percent in the first six months from 15.51 percent in end-June 2014.

“The tax-to-GDP in the Philippines is relatively low so (the government should look at) how to have a tax reform raising the revenues but also making the system more efficient because rates are quite high but collections are quite low,” Peiris said.

The government collected P1.264 trillion in revenues from January to July, up 15 percent from P1.1 trillion in the same period last year. Collections, however, were two percent short of the government’s P1.293-trillion goal for the period.

IMF officials attended yesterday part of the Asia-Pacific Economic Cooperation’s (APEC) meetings leading to the announcement of the Cebu Action Plan on Friday. The 20-year roadmap focuses on four pillars: financial integration, fiscal transparency and policy reform, financial resiliency, and infrastructure development and financing.

Peiris said under financial resiliency, the economies would want to have a good revenue base so they are resilient from external shocks.

Sanjeev Gupta, acting director at the IMF’s fiscal affairs department, said in the same briefing APEC member economies should ensure transparency on budget process and improve infrastructure investments.