CEBU CITY: As the Philippine Congress seeks to finalize a comprehensive tax reform law, the International Monetary Fund (IMF) has proposed that the country get more people to pay taxes while it lowers its income tax rate.
Doing so would safeguard the country’s revenue stream, said IMF Resident Representative to the Philippines Shanaka Jayanath Peiris during a press briefing at the sidelines of the Asia-Pacific Economic Cooperation (APEC) meetings.
“A comprehensive approach would seem the best way to go and we would support very much a comprehensive reform…But the question is in the details because we want it to be at least revenue-enhancing,” Peiris said.
“There are lots of exemptions and the rates are quite high so we could have much more broadening of the tax base while lowering the rates because otherwise you are taking a big risk with the revenue,” he warned.
He said the Philippines must make the tax system more efficient by improving tax collections.
“The tax-to-GDP (tax collections) in the Philippine is relatively low so (the government should look at) how to have a tax reform raising the revenues but also making the system more efficient because rates are quite high but collections are quite low,” Peiris said.
Improved tax collection efforts
According to Department of Finance data, as of June 2015, the Philippines’ tax effort when measured against Gross Domestic Product increased from 13.69 percent during the same period last year to 14.09 percent this year.
The revenue to GDP ratio, on the other hand, also improved from 15.51 percent in June 2014 to 17.13 percent this year.
In tax collection, the Philippine government was able to collect P1.264-trillion in revenues from January to July, 15 percent higher than the P1.1-trillion tax collection during the same period last year.
Nevertheless, collections were two percent short of the government’s P1.293-trillion goal for this year.
Peiris said the issue on revenue reform can be linked to the ongoing APEC meetings for the Cebu Action Plan.
This 20-year roadmap focuses on four pillars: financial integrations; fiscal transparency and policy reform; financial resiliency; and infrastructure development and financing.
Raising public investment
One of the main topics during the financial meeting, he said, is how to raise public investment.
Peiris said that “very low” tax collections means limited public investment.
Under the Cebu Action Plan to raise infrastructure spending, the financial ministers have seen the importance of revenues and environment tax rates in public investment and infrastructure.
For a country to have financial resiliency, economies should have a good revenue base, they said.
“There are two pillars [linked to revenue reform]. One is advancing fiscal transparency and reform, [the other is]financial resiliency. You want to have a good revenue base so that you are resilient to economic shocks,” said the IMF official.