Return to growth depends on tax reforms, lifting curbs

MANILA, Philippines — The economy will return to pre-pandemic activity only in 2025 at the earliest, unless the remaining tax reforms are legislated and lockdowns are lifted, the Department of Finance said.

Finance Undersecretary and chief economist Gil Beltran told reporters the Philippines may regain its 2019 numbers only in about four years, depending on how authorities address the spread of new variants and resurgence in COVID-19 infections.

Beltran also said lawmakers should work on passing the remaining fiscal measures listed under the Comprehensive Tax Reform Program (CTRP) to aid in the recovery efforts.

“Our estimates show – if we can get all these measures passed – by 2025, we will be back to our usual deficit. We can even do better if the economy bounces quickly,” Beltran said.

With less than a year in office, President Duterte’s economic team may need to rush legislators to pass the remaining CTRP priorities. The task appears to be daunting, however, given that the Congress will have to prioritize the approval of the national budget for 2022.

The Cabinet-level Development Budget Coordination Committee (DBCC) last week downgraded its gross domestic product (GDP) growth target from a range of six to seven percent to four to five percent, taking into consideration the spread of the Delta variant that has forced Metro Manila and select areas into strict lockdown anew.

In May, the DBCC also adjusted the deficit program to 9.4 percent and 7.7 percent of GDP this year and next, respectively, before settling to within pre-pandemic levels at 6.4 percent in 2023 and 5.4 percent in 2024.

Finance Secretary Carlos Dominguez III, for his part, said the Philippines has managed to retain its sources of output during the pandemic. Once mobility restrictions are relaxed, he expects industries to speed up their production.

“This pandemic has not destroyed the factors for production, it has just put (them) in quarantine. Once (they are) released, we will grow at a very, very healthy pace,” Dominguez said.

The Duterte administration plans to pass its pending tax reforms under the CTRP, particularly the real property valuation reform and the Passive Income and Financial Intermediary Taxation Act (PIFITA).

The real property valuation reform seeks to put up a single base for the taxation of real estate in an effort to improve collection. PIFITA will simplify the number of tax rates for passive income, financial services and transactions to 36 from 80.