Moving forward, the government should prioritize tax reforms to boost revenue collections, instead of imposing taxes to fill the revenue gap.
On this note, the traffic conditions in Metro Manila and other urban centers are only getting worse. A number of observers have even pointed out that Metro Manila may soon become uninhabitable without any infrastructure intervention in place. The Philippines has also fared poorly in several global rankings, partly dragged down by its decrepit infrastructure. Moreover, infrastructure development has been mostly concentrated in urban cities, highlighting an urban-rural infrastructure gap. Needless to say, the country’s infrastructure quality has been a major obstacle from maximizing its economic gains.
The 2017- 2018 Global Competitiveness Report puts the Philippines at 97th out of 137 countries in terms of overall infrastructure, trailing behind other ASEAN countries. Infrastructure was also cited as one of the five most problematic factors for doing business in the country.
According to the World Bank, the logistics performance index of the Philippines has also been declining with a ranking of 71st in 2016, falling several notches from 44th place in 2010. The country’s ratio of cost-to-sales of goods is also higher compared to other Southeast Asian nations.
These results are not surprising.
After all, the Philippines has consistently underinvested in the infrastructure sector, spending less than the recommended 5% of the Gross Domestic Product ( GDP). While the past governments have acknowledged this deficiency, it was only the Duterte government, supported by a wide fiscal space, which boldly dared to ramp up infrastructure spending to unprecedented levels.
By 2022, the government committed to pour in P8.2 trillion into the sector. Of course, the larger infrastructure allocation should also be matched by faster and more efficient government spending.
To the government’s credit, it has been taking initiatives to address roadblocks in the bureaucratic process.
For all its flaws and shortcomings, we must acknowledge the long-term benefits from the TRAIN, especially if the government successfully implements these infrastructure programs as planned.
However, as the government is working on legislating future tax packages, it must also heed lessons from its TRAIN experience.
While we recognize the government’s need to raise enough revenues to finance its development programs, we cannot discount the adverse effects of higher commodity prices among Filipino consumers. In the first month of TRAIN’s implementation, for instance, prices have already gone up by 4%, the highest in three years.
Moving forward, the government should prioritize tax administration reforms to boost revenue collections, instead of imposing taxes on a wide array of commodities to fill the revenue gap.
At the end of the day, while the Philippines is one of the most highly taxed economies in the region, its tax efficiency rate is also among the lowest. Perhaps we can also take a page out of our neighbors’ books.