Taxes and borrowings

Finance Secretary Ralph Recto talked straight to the point when asked about new taxes in the offing. Coming out soon, the Congress-approved bill imposing tax on foreign digital service providers is already submitted to Malacañang Palace, Recto said. Passed by both the Senate and the House of Representatives in June this year, this seeks to impose a 12 percent value-added tax (VAT) on digital transactions involving non-resident digital service providers.

Digital services refer to those provided over the internet or other electronic networks using information technology. These include online search engines, online marketplaces, cloud services, online media and advertising, online platforms and digital goods. As of last check, Recto disclosed, this is just awaiting the signature for approval into law by President Ferdinand “Bongbong” Marcos Jr. (PBBM). Although he was already out of the 19th Congress when this was ratified by both chambers, Recto believes it will not suffer veto by the President. In fact, the Department of Finance (DOF) is already preparing to draft its implementing rules and regulations (IRR), Recto added.

Speaking at our Kapihan sa Manila Bay last week, Recto candidly admitted four other proposed administration revenue-raising measures are House-approved but are still pending final pass by the Senate. Recto hastily clarified though that he just inherited the four tax bills when he took over the finance post in January this year.

The four pending tax bills are: the Single Use Plastic Tax; the Motor Vehicle Road Users Tax (MVURT); the Rationalization of the Mining Tax and the Passive Income and Financial Intermediary Taxation Act (PIFITA). During the last Senate committee on ways and means hearing, the DOF reported the PIFITA could result in revenue losses of up to P125.9 billion from 2025 to 2029.

Of the three tax bills, the MVRUT bill – if enacted – would generate the biggest additional revenue of at least P274 billion from increasing road user tax charges. It will come from the gradual increase in the charges required of car owners over the next five years. It is billed as the government’s most important fiscal instrument against traffic congestion as well as to raise additional revenues to finance the controversial Public Utility Vehicle Modernization Program.

This early, the government is bracing from the estimated P7-billion revenue loss once the ban takes effect by the end of this year of all internet gaming licenses, previously called Philippine offshore gaming operators (POGOs). Recto, along with the other socio-economic Cabinet cluster members, supported calls to ban the POGOs.

Arriving at our news forum, Recto gazed around the venue at the Cafe Adriatico in Remedios Circle in Malate in obvious awe as memories of this place flooded back to him. The 60-year-old Recto turned nostalgic when he settled down for our weekly breakfast news forum. Our Kapihan sa Manila Bay has been held for the past nine years at Café Adriatico.

Recto quipped and made a naughty wink: “I used to come here while I was still a student. This is a nice dating place.” It did not escape my witty retort: “You were not then Mr. Vilma Santos.” To pump up audience interest during his election campaign rallies, Recto always introduced self as “Mr. Vilma Santos.” He, of course, was referring to his very popular wife and award-winning TV and movie actress-turned-politician.

The Rectos are regarded as a power couple. Recto himself is a veteran lawmaker who crisscrossed the Senate and the House of Representatives as well as the executive branch of government in his career as a public servant. He was the House deputy speaker when PBBM recruited him to join his Cabinet in January this year.

Even with POGO revenues gone by yearend, Recto counts upon the four tax bills’ approval. These were among the priority measures agreed upon at the Legislative Executive Development Advisory Council (LEDAC). They were among the LEDAC “wish list” enumerated by PBBM in his State of the Nation Address (SONA) three times before the 19th Congress.

However, Recto expressed optimism that the four tax bills still pending at the Senate will finally get through before the third and last regular session of the 19th Congress adjourns in June next year. Incidentally, both chambers will go on recess again this October before the filing of certificates of candidacy for the May 2025 elections.

“We are moving in the right direction and we have data to show for it,“ Recto reassured the Filipino people.

“We are on track to meet our fiscal program for the year, having already achieved half of our targets,” the finance chief added.

As of mid-year, DOF reported total revenues grew by double digits – 15.6 percent – to P2.15 trillion. Recto ran down the collection reports of the Bureau of Internal Revenue and Bureau of Customs – both under the DOF – of total tax revenues by 10 percent to P1.84 trillion. For non-tax revenues, he noted, higher dividends remitted by government-owned and controlled corporations (GOCCs) recorded a 63.3 percent growth, totaling P314.2 billion, “because we hiked up their (GOCCs) remittance rates to 75 percent from 50 percent to scout for more resources without imposing new taxes on our people.”

“And we continue to manage our debt according to the highest standards of fiscal discipline. As we are very vigilant not to max out the Philippine national credit card,” Recto further assured the public. According to him, majority, or 68.3 percent of our country’s total borrowings, are in Philippine pesos.

“Kaya hindi po kayo dapat mabahala, dahil ang utang na ito, galing po sa sarili natin. Ibig sabihin, karamihan ng interes na ating binabayad ay napupunta rin lang bilang dagdag na kita ng ating mga kababayan,” he explained.

Proof of which, he cited, the debt-to-GDP (gross domestic product) ratio of the Philippines has been brought down from 60.9 percent in 2022 to 60.1 percent. “We are determined to continue pushing it below 60 percent so we have enough buffer in case another crisis hits us,” he pointed out.

Like taxes, borrowings are the only most certain things in the Philippines.