Philippines as a global tax leader
The components to be funded by the $400 million loan include the BIR’S Digital Transformation; implementation of international tax standards; enhancement of key taxpayers’ services, including online tax registration, return filing and payment; capacity building of staff, and improvement of taxpayer compliance.
Part 23
ON November 13, 2023, the Asian Development Bank (ADB) granted a $400-million loan to help the Philippines achieve its medium-term fiscal strategy and finance its post-pandemic economic recovery. This comes after a series of loans extended by ADB to enhance the revenue mobilization of the tax-collecting agencies, including the Bureau of Internal Revenue (BIR) and the local government tax-collecting units (LGUS).
The previous loans granted by ADB include the $300 million policy-based loan in 2019 for the establishment of a legal and institutional framework to mobilize local revenues; the provision of technical advice in the formulation of the Comprehensive Tax Reform Program packages from 2016 onwards; the $26.5 million investment project in 2020 to support government initiatives and reforms to improve local governments’ real property tax collection; and the $400 million policy-based loan in August 2021 for the Local Governance Reform Program. With all of these loans and assistance, the BIR, the Bureau of Local Government Finance, and the LGUS are involved in a number of tax transformation activities while they are doing their day-to-day tax administration and collection efforts.
This newest loan of the ADB comes from its Domestic Resource Mobilization Program Subprogram 1. The Philippines is the borrower of this policy-based loan for DRM reform. This DRM program addresses the country’s need to tackle discrepancies in tax policy frameworks to boost tax compliance, reduce tax avoidance, and raise more revenues from activities and products that have a major impact on the environment or contribute to climate change. The program recognizes that DRM reforms required not only in raising taxes, but also in designing a revenue system that promotes inclusiveness, encourages good governance, attracts investments and job creation, reduces inequality, and tackles climate change.
This loan is expected to yield a higher tax-to-gross domestic product (GDP) ratio, thereby ensuring sustainable financing for the country as it strives to accomplish its objectives outlined in the Philippine Development Plan 2023-2028. Under the PDP 2023-2028, the Philippines aims to raise its tax-togdp ratio to at least 15.9 percent by 2026. Per World Bank information, this ratio stands at 14.6 percent as of 2022. (https://data.worldbank.org/indicator/gc.tax.totl. Gd.zs?locations=ph). I am optimistic that the Philippines can do better than the projected tax-to-gdp ratio of 15.9 percent. Increasing this ratio by 1.3 percent within the next three years is a doable challenge to the BIR. Further, the ADB said the project can potentially increase the ratio of actual tax revenues to tax potential, from 75 percent in 2020 to at least 85 percent by 2026. The BIR should also strive to exceed this metric.
The components to be funded by the $400 million loan include the BIR’S Digital Transformation; implementation of international tax standards; enhancement of key taxpayers’ services, including online tax registration, return filing and payment; capacity building of staff, and improvement of taxpayer compliance.
BIR Commissioner Romeo Lumagui, Jr. is expected to lead the charge in attaining the outcomes on increased tax efficiency ratios, a digitally-driven BIR meeting world-class tax standards, and improved taxpayer compliance and servicing of their requirements. He has already initiated several innovative programs and will just have to sustain these to meet his mandate of transforming the BIR to collect taxes and serve taxpayers better.
To be continued
Joel L. Tan-torres was a former Commissioner of the Bureau of Internal Revenue. He has also held the various positions of Dean of the University of the Philippines Virata School of Business, Chairman of the Professional Regulatory Board of Accountancy, Tax partner of Reyes Tacandong & Co. and the Sycip Gorres and Velayo & Co., and director of various corporate boards. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979. He is now back to his tax and consultancy practice and can be contacted at and his firm JL2T Consultancy.