The government must raise an ad-ditional P1 trillion a year to fund public investment that will upgrade the Philippines to a status of high-income economy by 2040, the Department of Finance (DOF) said Tuesday.
The Philippines is presently a lower-middle income economy with a gross national income (GNI) per capita of $4,125, using the World Bank Atlas method.
Within the Association of Southeast Asian Nations (Asean), the Philippine shares such status with Myanmar, Indonesia, Laos and Vietnam.
The high-income economies with a GNI per capita of $12,736 or more are Brunei and Singapore.
“Our estimate is: to achieve our targets of high-income status and to eradicate poverty, we need to raise investments by P1 trillion every year on top of the P1 trillion that we . . . [are already investing],” Finance Undersecretary Karl Kendrick Chua told the House Ways and Means Committee during a hearing on Tuesday.
Chua noted the Duterte administration must focus on improving tax and customs administration in the next three years to reach the goal.
Of the P1-trillion fund requirement, he said P600 billion can be raised from improved tax and customs administration, as well as savings from spending.
P400 billion will come from tax policy equivalent to some 2 percent of the country’s gross domestic product (GDP).
“This is to bring us to the level where our neighbors have experienced when they were growing to become upper middle income country and to eradicate poverty,” Chua added.
These can be realized if the current administration’s comprehensive tax reform package will be implemented.
“Currently, the way we look at the tax system, even if BIR [Bureau of Internal Revenue] and BOC [Bureau of Customs] were to be 100 percent efficient, we don’t think that they can achieve the targets that the budget has set. Why? Because the current tax system has built-in inefficiencies,” the DOF official noted.
For instance, the current tax system of the Philippines had not been adjusted to inflation, he said, noting that the collections from the excise tax on oil back—at 2 percent of the GDP in 1997—has now deteriorated to only 0.2 percent.
“The second is: we have built in a lot of exemptions and incentives, and many large corporations are beneficiaries of income tax holidays—and that creates loss of around 1.5 percent of GDP from estimates that we have gathered from the World Bank and other experts,” he said.
“Finally, we have the bank secrecy which prevents BIR from doing a proper audit. Because of these reasons, we believe that a reform of the policy is also needed,” he added.