MANILA, Philippines — There is ample scope to enhance the Philippines’ revenue mobilization through new and additional tax measures that could raise close to P350 billion, according to the International Monetary Fund (IMF).
The amount that is expected to be raised through potential new measures is equivalent to 1.52 percent of gross domestic product (GDP).
“There is ample scope to enhance revenue mobilization, which can underpin a faster medium-term fiscal consolidation, while securing resources for the authorities’ social and development plans,” the IMF said.
It added that the national government’s tax-to-GDP ratio, at 14 percent of GDP, is relatively low.
The IMF said potential additional tax measures could raise P328.5 billion or 1.4 percent of GDP.
“Based on staff’s assessment, there is significant scope to raise additional tax revenues – of at least 1.4 percent of GDP above the baseline under VAT, corporate and personal income taxes. This will be more than enough to achieve a faster consolidation, with the remainder of about 0.7 percent of GDP used to finance high-priority spending and increase support for the vulnerable,” it said.
These include the value added tax (VAT) base broadening via the lifting of zero-rating or exemptions with P142.5 billion or 0.60 percent, followed by new excise tax on cigarettes, e-cigarettes, and health tax with P91 billion or 0.39 percent of GDP, and motor vehicle user charge with P38.3 billion or 0.15 percent.
Other potential additional tax measures include the increased excise tax on coal that could raise P35.4 billion or 0.15 percent, additional excise tax on gaming with P13.1 billion or 0.06 percent, and the repeal of excise tax exemption for pickups with P8.2 billion or 0.03 percent.
Likewise, personal income tax base broadening and improved capital income tax, corporate income tax streamlined investment incentives and cross-border taxation, imposition of excise tax on motorcycles, increased excise tax on petroleum, carbon taxation, cryptocurrencies, enhanced transfer pricing rules, taxation administration and compliance enhancement and excise tax on telecommunication.
The IMF is not giving up on the plan to impose excise tax on telecommunication services that was first raised, but strongly opposed in 2012.
According to the IMF, new tax measures that are expected to raise P20.1 billion this year include the VAT on digital services (P9.6 billion), mining (P7.9 billion), new excise tax on plastic bags and tax on pre-mixed alcohol beverages (P400 million).
“In the near-term, the Philippines can pursue high-quality tax reforms to boost revenue collection and improve tax composition… The tax reform should focus on improving the overall efficiency and equity of the tax regime while excluding policies that are difficult to implement and administer, or that have a negligible revenue impact,” it said.
According to the IMF, the reforms should be complemented with ongoing efforts to improve revenue administration, including through enhanced use of e-filing and electronic payments, and sustained efforts by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) to improve tax compliance by stepping up efforts for digital tax filing.
It said exploring options to improve expenditure control and efficiency should complement revenue measures.
The authorities, it added, have prioritized the digitalization of public financial management (PFM) and public service delivery to enhance efficiency, transparency, and accountability.
“They have also implemented procurement reforms that include simplifying bidding documents, issuing blacklisting orders, and streamlining the procurement process through better use of information and communications technology. These measures are welcome and would help reduce corruption vulnerabilities in public financial management, but more can be done to further enhance expenditure control and revenue administration,” the IMF said.
Finalizing the pending military pension reform bill (raising the retirement age and introducing mandatory pension contributions), as well as exercising greater spending discipline in other areas, including public sector wages are critical.
Furthermore, continued reforms in public investment management are important to close Philippines’ efficiency gap in public infrastructure investment, and improve the effectiveness of the Build, Better, More program.
Increasing efficiency in public service delivery at the LGU level is also critical as they take over greater responsibilities under the Mandanas ruling.