New fiscal targets and the anti-agricultural economic sabotage law

Three topics here and we go straight to the numbers and facts.

DBCC new fiscal targets

Last Monday Dec. 2, the Development Budget Coordination Committee (DBCC)  released their updated medium-term, 2024-2028 macroeconomic growth and fiscal targets. The DBCC is composed of DOF Secretary Ralph G. Recto, NEDA Secretary Arsenio M. Balisacan, DBM Secretary Amenah F. Pangandaman, and BSP Governor Eli Remolona.

The revenue targets are P4.38 trillion in 2024 or 16.5 percent of GDP, to P6.25 trillion in 2028 or 17 percent of GDP.

The disbursement or spending targets are P5.91 trillion in 2024 or 22.3 percent of GDP, to  P7.62 trillion in 2028 or 20.7 percent of GDP.

The budget deficit targets are P1.52 trillion in 2024 or -5.7 percent of GDP, to P1.37 trillion in 2028 or -3.7 percent of GDP.

In 2023, revenues were P3.82 trillion or 15.7 of GDP, disbursements were P5.34 trillion or

21.9 percent of GDP, and deficit was P1.51 trillion or -6.2 percent of GDP. So there were improvements in 2024 over 2023 – higher revenues, lower spending, and lower deficit as percent of GDP. And things would further improve on the way to 2028.

As an advocate of small government, small taxes and bureaucracies, I find the updated fiscal targets still high, like a deficit higher than -3 percent of GDP by 2028. But the behavior of many agencies both national and local, the behavior of the public themselves seeking more subsidies and freebies even without economic, finance or health crisis, make drastic reduction in spending, deficit and borrowings highly improbable.

Thus I find the compromise targets of the DBCC as practical and realistic. I particularly support the corporate income tax cut under CREATE MORE law pushed by DOF Secretary Recto, the spending cut under the proposed National Government Rightsizing Program (NGRP) bill pushed by DBM Secretary Pangandaman. These two measures should help expand the investment and corporate tax-base and reduce wastes and corruption in government. They will help expand the GDP size, the denominator, so that deficit/GDP and debt/GDP ratio should decline, slowly but consistently.

The Anti-agriculture economic sabotage (AES) law

Last Tuesday Dec. 3 I attended the Stratbase forum, “Strengthening Resilience for Food Security: Collaborative Strategies Against Agricultural Economic Sabotage” held at the AIM Conference Center in Makati. Focus was implementation of “Anti-Agricultural Sabotage Act” or RA 12022, signed into law only last Sept. 26. The law intends to control large-scale smuggling, hoarding and profiteering of agricultural products including tobacco.

The speakers were DA Assistant Secretary Felicizimo Madayag Jr., DOJ ASec Randolph Pascasio, DOF Revenue Operations Group Atty. Emee Macabales, BIR National Investigation Division Atty. Mary Gretchen Mondragon, NBI Cybercrime Division Atty. Van Homer Angluben, PNP Director for Intelligence PBGen Westrimundo Obinque, PCG Commander for Maritime Security Law Enforcement Command Robert Patrimonio. Host was Ms. Nikki de Guzman of TV5.

The DA official spoke about the need for border controls, partnership of national enforcement agencies with local government units and people’s organizations. The DOJ official admitted that out of 547 Customs cases only 23 percent reached the courts, and out of 192 agriculture smuggling cases only five percent resulted in prosecution. And DOJ  was improving their procedures to secure higher convictions.

The DOF, BIR, NBI, PNP and PCG officials followed up with their own measures to control smuggling and illicit trade of agriculture products into the country. Such illegal products not only can harm public health but they harm public finance, they pay zero or little taxes while annual public expenditures keep rising.

I checked the Philippine Statistics Authority (PSA) latest trade data, January-September 2024 vs January-September 2023. Here are some numbers for agriculture products: animal and vegetable oils and fats, fruits and vegetables, feeding stuff for animals (excluding unmilled cereals), dairy products – they have over $1 billion imports each in 2024 and registered positive percentage growth over 2023 levels.

But these products experienced decline in importation: fish and fish preparations down to $494 million or -9 percent; beverages and tobacco manufactures down to $379 million or -17 percent; and tobacco unmanufactured $225 million or -12 percent.

Perhaps the smugglers of fish and tobacco products sensed that the anti-AES bill was nearing enaction into law, they hastened their non- or under-declaration of agriculture imports.

The GB-BEM smuggling case

Among the prominent cases a few years ago about large-scale tobacco smuggling was GB-BEM Cigarette Co. Inc operating as a cigarette manufacturer inside Clark Ecozone. When the BIR raided it in Feb. 5, 2020, they found 1.65 million packs of cigarettes supposedly  for export to Malaysia but lacking tax stamps, GB BEM was registered with PEZA but not with the BIR as excise taxpayer, the estimated unpaid excise tax from 2017 to 2020 was P14.05 million. Plus many reports that its cigarettes were sold in Central Luzon.

See these reports, “BIR strike team shuts down illegal cigarette maker in Clark ecozone” (DOF website, April 6, 2020), “BIR promises to remove export cigarettes’ tax-stamp exemption” (BusinessWorld, March 1, 2021), “PEZA probes 2 cigarette makers without BIR registration” (BusinessWorld, March 8, 2021).

Then last Nov. 20, 2024, the First Division of the Court of Tax Appeals (CTA) promulgated a Decision acquitting PEZA-registered GB BEM Cigarette Co. Inc., and its officers. The CTA cited a number of technicalities that the BIR strike team failed to produce to secure conviction.

I think the lesson here is that technicalities and not substance, like the operation for several years of non-BIR-registered cigarette company, non-payment of excise tax for big volume of manufactured cigarettes, were resorted by the CTA. The BIR and DOF, the tobacco tax-dependent agencies like PhilHealth and potential health beneficiaries, are the losers.