Recto faces tight fiscal space, but insists no new taxes
The onset of the new year marked a new face that would have to deal with the country’s still limited fiscal space, but lawmaker turned Finance chief Ralph Recto is in no hurry to introduce new tax measures that could be burdensome to Filipinos.
Recto formally joined the Marcos administration last Jan.12 after months of rumors that former Finance secretary and now Monetary Board member Benjamin Diokno is exiting as economic team head.
Recto is facing a running budget deficit of P1.11 trillion and a record outstanding debt of P14.5 trillion after taking over the DOF post.
Economists believe 2024 could be the year that the government can finally impose new taxes, not just reforms that are critical in generating revenues and bringing back the economy to a highgrowth trajectory.
However, it seems that Recto is taking the harder path of continuing pending tax reform proposals and dodging potential measures that could expedite reaching the P4.3 trillion revenue target for the year.
For now, Recto and his team refined and tweaked pending tax proposals initiated by his predecessor.
But what is certain is that Recto will not push for consumption-based taxes especially on junk food and salty food, as well as the higher levy on sweetened beverages.
“As to imposing new taxes, frankly speaking, there are no plans of imposing additional new taxes. I think our first job is to collect what is on the table,” Recto said.
Such a tax measure is seen adding some P76 billion to state coffers and reducing consumption of junk food by 21 percent.
However, the proposal was also called “anti-poor” amid the lack of affordable food options in the market.
The finance chief argued that the economy is just regaining momentum from the pandemic with external risks still present that could drive up inflation anew.
Recto said the priority is for inflation to be tamed and kept at bay, thus, new taxes would have to be properly studied.
“When you impose taxes, that is also inflationary. So I don’t think that now is the time to impose very high taxes,” Recto said.
5 MEASURES TO RAISE P213 B
In order to still generate revenues for the government, the new Finance chief will instead push for the pending five priority measures that are seen yielding P212.9 billion starting this year until the end of the administration in 2028.
All five proposals have been filed and are in the various stages in the two chambers of Congress. These are also the same measures pushed by Diokno last year.
“We have worked to review all proposals and have reconsidered some key provisions,” Recto said.
“This is in consideration of the economic situation, where some proposals might have unintended consequences in terms of inflation or in terms of possibly hindering growth in some sectors,” he said.
Among the priorities, the value added tax on digital service providers (DSP) is seen generating the most revenues for a total of P83.8 billion.
The measure will effectively amend the Tax Code and impose a 12 percent value added tax (VAT) on digital transactions coming from digital advertising, subscription-based services, and other services using information communication technology-enabled infrastructure, among others.
The VAT on digital transactions also aims to level the playing field between local and foreign DSPs by clarifying that services provided by the latter in the country are subject to VAT.
Another priority measure is the rationalization of the mining fiscal regime to encourage growth while ensuring that the government still gets its fair share of the profits from mining activities. The proposal is seen generating P47 billion in revenues from 2024 to 2028.
The DOF is also tweaking the reform on the motor vehicle users’ charge to consider the impact of the new rates on inflation, particularly in the transportation and logistics sectors.
The revised reform would generate P36 billion until 2028. The pending measure aims to come up with a structured taxation plan based on their type and gross vehicle weight.
Recto earlier argued that motorists are now paying a lot of taxes such as excise and value added tax on oil, as well as on the vehicles themselves.
“Today, 50 percent or thereabouts, of vehicles are unregistered. And if you impose higher taxes, maybe more vehicles will not register,” Recto said.
“So I think we have to temper some of these increases because like I said, they’re also inflationary. And, it’s all about timing as well,” he said.
The DOF is also seeking to curb the high volume of mismanaged plastics by imposing an excise tax on certain single