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THE Philippines’ effective enforcement of both tax
incentives and penalties remains elusive, the Institute of
International Finance Inc. (IIF) said.
“A change in policies will be
needed, however, if the favorable near-term outlook is to be
sustained over the medium term. Despite the progress in controlling
the budget deficit, renewed weakness in revenue growth suggests that
fiscal sustainability has yet to be achieved,” the world’s
global association of financial institutions said in a country
report.
IIF said boosting revenues will
take on more urgency after the three-year special surcharge put in
place in 2006 expires this year, citing the corporate income tax
rate, which will drop to 30 percent in 2009 from 35 percent at
present.
“The expiration of the
surcharge is projected to reduce revenues by about P20 billion
annually, 2 percent of total tax revenues,” the association said.
The low buoyancy of the tax
regime and the elimination of the surcharge, IIF said, would mean
more extensive tax reform and revenue collection efforts will be
needed for the government to accelerate needed pubic spending and
attain fiscal sustainability.
After reaching a three-decade
high of 7.3 percent last year, economic growth is set to slip to 6.5
percent this year before reaching 7 percent next year, the group
said.
The IIF said inflation appears
more dependent on global conditions, “although the outlook for
upward price pressures to subside and for domestic demand to soften
provides scope for a rate cut later this year.”
As a smaller balance payments
surplus also diminishes the upward pressure on the exchange rate,
the peso should retain an upward bias and rebound from the lows of
the first quarter of the year, the group said.
“The current account surplus
peaked at $6.4 billion in 2007, and should recede at around $4
billion this year and next,” it added..
The current account surplus and
the projected external financing profile raise official foreign
exchange reserves to $47 billion at the end of 2009 from $32 billion
in February this year.
IIF said total external debt
should rise slightly from $63 billion last year to $64 billion at
the end of 2009. Debt service payments would also fall from $9.7
billion in 2007 to $8.4 billion in 2009, or 11 percent of exports of
goods and services.
In addition to moderate export
growth and higher imports, the support from strong receipts of
workers’ remittances, tourism, and call center activity is likely
to diminish over the near term in line with slower growth in the
global economy, the group said.
--Chino S. Leyco
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