Marcos admin to preserve existing tax system but review continues

THERE is a need for the Philippines to preserve its existing tax systems in order to maintain fiscal discipline and carry out consolidation until 2028, Finance Secretary Benjamin Diokno said on Tuesday, May 30, 2023.

However, Diokno said in a press conference in Malacañang that reviewing the country’s tax system is ongoing to improve what needs to be improved.

He said President Ferdinand “Bongbong” Marcos Jr. had reiterated during a sectoral meeting earlier Tuesday that there is also the need to balance the system.

“We have what is called a fiscal program until 2028, and right now, there are also many demands for the spending side... If incentives are given out, you will lose collection. So, we are studying it,” he said in a mix of Tagalog and English.

“It’s not a perfect system, so we will look for improvements. But right now, our revenue system is doing well,” he added.

Diokno said they are working with the International Monetary Fund to address the low value-added tax (VAT) efficiency in the country.

He said that while the Philippines has the highest VAT rate as compared to other countries, its collection is the most inefficient at only 40 percent due to “too much” exemptions.

Prior to the passage of the reforms, Diokno said the Philippine Tax Code contained many exemptions—some 56 lines of exemptions and 84 additional exemptions in special laws.

Diokno said the country collected an average of P723 billion from VAT, 40 percent of the expected VAT collections, from 2016 to 2020.

Citing a World Bank study, Diokno said the policy gap or the supposed tax to be collected and what is actually collected could reach as high as P539 billion.