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Govt’s revenue plan may not lift economy by 7%

THE government’s plan to raise revenues may not translate into a 7-percent economic growth and may not solve the country’s fiscal woes, the United Nations Development Program in a report said.

Hafiz Pasha, Asia bureau head of the UNDP, also said that there is “no major enhancement in public expenditure” even if the Medium-Term Philippine Development Plan envisions that the increase in revenues will translate into a corresponding reduction in the fiscal deficit.

“It is not clear how a 7-percent growth rate can be arrived at without income in public expenditure. Increase in capital expenditure is 2 percent of gross domestic product [GDP] and I’m not sure if it will be adequate to finance the public investments proposed,” he said.

Pasha also pointed out that one of the important things the government must do is to increase the credibility of the MTPDP by indicating that it has the financial resources to back up its many programs and to push for more programs to increase capital.

Pasha said the difficult situation that the country is faced with right now is mainly due to the “crowding out” of public expenditure especially capital expenditure owing to high interest payments.

“[Interest payments] have risen quite dramatically and today account for something like 45 percent of revenues [as opposed to] 25 percent less than five years ago,” he said.

“Tax base, in terms of GDP in nominal terms, has continued to rise but some of the growth in this tax-base has not been seen, has not been translated into corresponding growth in tax revenue and this may highlight the problems of tax administration and tax evasion in the system.”

The UNDP official also said some of the eight proposed revenue measures will not spur economic growth.

The general tax amnesty may give the government some revenues but these would not be enough to generate the P25 billion that the government targets annually, he said. “You may gain revenues but whether you can target P25 billion annually, is on the optimistic side. It is unlikely that it will be forthcoming with that kind of declaration. I’m not sure if it will generate P25 billion annually.”

Pasha also expressed the same sentiment on the increase in the value-added tax (VAT) rate from 10 percent to 12 percent, from which the government expects to generate around P30 billion annually.

On increasing the excise tax on petroleum products, Pasha said this might prove to be more of a political and poverty reduction difficulty than a means to generate revenues.

Pasha said that although oil prices have already hit $50 a barrel, many countries have already opted to bring down petroleum tariffs to cushion the shock for consumers.

Given the difficulty of passing legislation, he suggested starting with “stronger efforts” geared toward revenue administration.

He also proposed reviewing the tax exemptions; broadening the tax base; and cautioned against the implementation of higher tax rates that “may actually create a problem in terms of inputting on the private sector.”

Darwin G. Amojelar

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