Tax reforms to reinforce fiscal stability

A strong revenue base instills fiscal discipline and ensures sustainable economic growth.

Tax reforms to reinforce fiscal stability
Finance Undersecretary Gil Beltran
The Department of Finance is guided by this belief and sees the passage of the remaining packages of the Comprehensive Tax Reform program into law vital to ensure a steady source of revenues for the country’s economic modernization.

Finance Undersecretary Gil Beltran, who is also the DOF’s chief economist, stressed need to complete the passage of the remaining packages of the Duterte administration’s comprehensive tax reform program to ensure the equitable sharing of funds for the government’s social and infrastructure programs, while securing fiscal stability long into the future.

Beltran expects revenue collections to reach P3.5 trillion, with P187.1 billion coming from tax reforms.

These include P153.8 billion from the first CTRP package or the Tax Reform for Acceleration and Inclusion (TRAIN) Law; P15.7 billion from Republic Act No. 11346, which raised excise taxes on tobacco products; and an estimated P20 billion to be collected from Package 2 Plus, which aims to increase excise taxes on alcohol and e-cigarette products.

Package 2 Plus was already approved by the House of Representatives on third and final reading on Aug. 20.

Expenditures in 2020 are expected to reach P4.2 trillion or 19.8 percent of the gross domestic product, which translates into a deficit target of P677.6 billion, or 3.2 percent of GDP that is well within the norm for deficit spending, Beltran told senators in a Development Budget Coordinating Council meeting late August.

The executive branch will continue to be engaged with the legislature in passing the remaining tax reform packages to generate additional revenue streams for government to fund social amelioration programs, he said.

‘A’ investment grade rating 

Beltran said the passage and implementation of the remaining tax reform packages and the rest of the fiscal reform agenda would help bring the country to the “A” rating territory “within the next couple of years.”

More importantly, he said completing the reform programs would further secure the country’s fiscal stability and help fulfill the shared goal of a decent and comfortable life for all law-abiding Filipinos.

“This means achieving our ultimate goal of bringing down poverty incidence from 21.6 percent in 2015 to only 14 percent by 2022,” Beltran said.

He said the Philippines’ elevation from lower- to upper-middle income country status ahead of schedule next year was proof that the government could accomplish its goal of beating extreme poverty within a generation, “if we stay on course and continue to invest in the right things.”

Beltran said for 2022, revenue and disbursement projections were estimated to rise to P4.4 trillion (17.2 percent of GDP) and P5.2 trillion (20.4 percent of GDP), respectively.

Given the revenue and disbursement program adopted by the Development Budget Coordinating Council, the deficit target would be maintained at 3.2 percent of GDP from 2019 to 2022 to sustain the government’s investments on infrastructure and human capital development, he added.

Beltran said the public sector deficit was projected to grow marginally to about 1.3 percent of the GDP by 2020 owing to the government’s aggressive spending to support the “Build, Build, Build “infrastructure modernization program.

A notch higher

The  government’s fiscal performance, debt management and policy reforms presented before senators were earlier reported by Beltran during a separate briefing held by the DBCC  on Aug. 22 before the House of Representatives appropriations committee.

Global debt watcher S&P Global Ratings in late April raised a notch higher its long-term sovereign credit rating on the Philippines to “BBB+” from “BBB” with a stable outlook, citing the country’s above-average economic growth, a healthy external position, and sustainable public finances.

The upgrade put the Philippines at par with Mexico, Peru, Thailand and Trinidad and Tobago. It was also higher than the “BBB” ratings of Italy, Portugal, Hungary, Panama and Uruguay and put the Philippines’ rating a notch away from the most-coveted “A” rating category.

S&P said the rating upgrade reflected the Philippines’ strong economic growth trajectory, which is expected to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term.

S&P further said the government has so far achieved partial success with its “Comprehensive Tax Reform Program.” The program aims to ensure that finances remain sustainable while addressing the nation’s pressing infrastructure needs and chronic underinvestment.

2018 a banner year for revenue collection

Beltran said 2018 was a banner year for the DoF as total revenue collection reached P2.85 trillion, which was 15.2 percent higher than the 2017 level.

Tax collections, which accounted for 90 percent of total revenues, posted a growth rate of 14 percent, with the Bureau of Internal Revenue and Bureau of Customs achieving double-digit collection growth rates of 10.1 percent and 29.4 percent, respectively.

Revenues attributable to the TRAIN Law amounted to P68.4 billion through 2018, exceeding the full-year target of P63.3 billion by 8.1 percent.

Beltran said the DoF expects this strong revenue performance to continue as total revenue collections already reached P1.5 trillion in the first six months of 2019, which is 9.7 percent or P127 billion higher than the same period last year.

Of the total revenues collected in the first half, P1.4 trillion or 89.2 percent came from tax collections.

“The 2018 tax effort rose to 14.7 percent of GDP. This is the highest rate in two decades and closely matches the regional average. The passage of the TRAIN Law and continuing administrative reforms in our revenue agencies brought about this record performance. The other tax reform packages also have made progress last year. We thank the Senate for their strong support for our proposed reforms,” Beltran said.

He said the DOF also continues to spearhead programs on cutting red tape and improving the ease of doing business by modernizing processes and the tax system. The DoF, together with the BIR and BOC, have been intensifying the campaign against tax evasion and smuggling, he added.

Beltran also cited the record dividend remittances by government-owned and -controlled corporations, which rose to P51.2 billion in 2018 and reflect the “improvements in corporate governance among the GOCCs.”

As of July 2019, dividend contributions of GOCCs reached another record total of P61.3 billion, pushing non-tax revenues higher by 6.9 percent in the first half of this year, he said.

Tax collection registered a growth of 10.1 percent in the first half of 2019. BIR collections rose by 10.6 percent, translating into an additional P101.8 billion in revenues over the same period last year.

BOC collections grew by 8.5 percent or a P23.6 billion increase from the same period of last year.

“We are confident this growth will be sustained in the coming period through continuing administrative reforms and the completion of the CTRP that will make our tax system simpler, fairer and more efficient. In both revenue agencies, we are automating processes and strengthening control measures against slippages,” Beltran said.

The country’s debt continue to be managed “according to the best standards of fiscal discipline,” Beltran said, noting that as of end-2018, debt as a percentage of GDP stood at 41.9 percent, down from 42.1 percent in 2017.

Topics: Gil Beltran , Department of Finance , Tax Reform for Acceleration and Inclusion Law , Development Budget Coordinating Council , House of Representatives
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