TAX reform will enable the Philippines to ramp up infrastructure investment in line with Asia-Pacific’s $22.6 trillion infrastructure needs through 2030, the Manila-based Asian Development Bank (ADB) said.
The baseline scenario indicates that developing Asia will need to invest $22.6 trillion from 2016 to 2030, or $1.5 trillion annually, in infrastructure, the multilateral lender said in the report “Meeting Asia’s Infrastructure Needs” released on Tuesday.
The investment is equivalent to 5.1 percent of the gross domestic product (GDP) projected for the region, it said.
The ADB report covers transport, power, telecommunications and water supply and sanitation.
Factoring in climate mitigation and adaptation costs raises the investmen t required to $26.2 trillion, or $1.7 trillion a year, equivalent to 5.9 percent of the region’s projected GDP, it said.
The ADB did not provide specific estimates for Philippine infrastructure needs but noted that public spending as a share of GDP declined in the country since the 1997/98 Asian financial crisis, and never recovered to pre-crisis levels.
The Philippines maintained a relatively low share of infrastructure spending to GDP, the bank said. Relative to the 1990–1997 pre-crisis period, public investment post-crisis 1998–2005 declined by 1.2 percent of GDP in the Philippines.
The lender said governments in many ADB developing member countries like the Philippines can increase public investment in infrastructure by raising more revenues, reorienting spending, and through prudent borrowing.
“Policy makers must evaluate how much fiscal space is available to increase infrastructure investment under various options for reforming public finance. Many countries in developing Asia can increase revenues through tax reform (including improving tax administration),” it said.
In most economies, specific policies have already been identified and their impact on revenues quantified, it added.
In the Philippines, the bank noted the World Bank and International Monetary Fund have estimated that tax reform (including rationalization of tax incentives and reducing value-added tax or VAT exemptions) along with improving tax administration can yield an estimated 2 percent to 3 percent of GDP in additional revenue.
“This is in line with the government’s own estimates,” it added.
At present, the Philippine government is pushing for a Comprehensive Tax Reform Program (CTRP) that aims to correct the current tax system and improve revenue collection to fund its six-year infrastructure program costing P8 trillion to P9 trillion until 2022.
The administration has repeatedly said that to raise enough funds for infrastructure spending, a set of revenue-enhancing measures is tucked into the first package of the CTRP under House Bill (HB) 4774.
These include expanding the value-added tax (VAT) base but retaining exemptions for seniors and persons with disabilities, and adjusting the excise taxes on automobiles and fuel, which will hit rich consumers the most as these are all consumption taxes.
Estate and donor taxes will also be reduced to a flat 6 percent under the tax reform bill.
The bill includes legislated administrative reforms at the BIR and Bureau of Customs (BOC) such as a fuel marking and monitoring system to prevent oil smuggling, the use of e-receipts, the mandatory connection of the point-of-sale system of all establishments to the BIR and the relaxation of bank secrecy laws for investigating and combating tax fraud.
Complementary reforms to HB 4774 include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation and granting an amnesty covering estate tax cases.
The administration targets to ramp up spending on infrastructure to P1.73 trillion by 2022, Finance Secretary Carlos Dominguez 3rd has said.
This would mean an estimated additional investment of P1.07 trillion in infrastructure each year over the next six years, he said. (See related story ‘Asia must spend $26T on infra by 2030 – ADB’ on B5)