PH to regain pre-Asian crisis tax effort level

The Duterte administration is on track to regain its pre-Asian crisis tax effort level this year following the implementation of the first tax reform law, data from the inter-agency Development Budget Coordination Committee (DBCC) showed.

Based on a DBCC document, the economic managers assessed that the government has enough capacity to bring its tax effort rate at 15.25 percent this year, at least one percentage point higher compared with 14.24 percent last year.

The tax effort, which is the proportion of taxes and duties to the gross domestic product (GDP), had accelerated to its highest level in a decade in 2017 without any new revenue legislation owing improved collection efficiency of the government.

For 2018, the Duterte administration is banking on the revenues generated by the recently enacted tax reform for acceleration and inclusion (TRAIN) law for its improved tax effort, a closely watched indicator of a country’s credit worthiness.

Prior to the 1997 Asian financial crisis, the Philippines’ tax effort stood nearly 16 percent, but it has been on a downward trend due to a host of factors, including tax evasion, the granting of unnecessary tax-exempt privileges to certain industries, and an inefficient tax collection system.

But the government’s tax effort already consistently improved during the past administrations from 12.1 percent in 2010 to 12.4 percent in 2011, to 12.9 percent in 2012 and 13.3 percent the following year.

The DBCC has estimated that tax revenues this year would amount P2.677 trillion, slightly higher compared with its previous target of 12.672 trillion under the Budget of Expenditures and Sources of Financing (BESF).

The above target tax-take assessment by the DBCC was owing to improved collections of the government’s main tax agency, the Bureau of Internal Revenue (BIR).

The DBCC expects the BIR to surpass its BESF ’s 12.005 billion target by 3.3 percent to 12.073 billion this year, while the Bureau of Customs is also seen to fall below its original goal of 1637.1 billion by 8.7 percent to 1581.3 billion.

With the BIR’s improving collection efficiency, the agency’s tax effort is projected to be at 11.8 percent this year, an increase compared with 11.2 percent in 2017.

The Customs, meanwhile, is estimated to still improve its tax effort despite the expected below BESF target collection.

According to the DBCC data, the Customs bureau could end this year with a tax effort rate of 3.3 percent, higher by 0.4 percentage point from 12.9 percent last year.