PAYING taxes in the Philippines became more burdensome this year, according to a survey done by the World Bank and PriceWaterhouseCoopers LLP. This as the International Monetary Fund (IMF) was supposed to have raised concern about the country’s ballooning budget deficit and the lack of a clear government plan on how to arrest the deterioration in tax collections.
In a report titled “Paying Taxes 2010,” the World Bank and Price WaterhouseCoopers said the Philippine ranking in terms of ease of paying taxes fell by six notches to 141st among 183 countries.
The country ranked 135th previously.
The report said it takes 47 transactions 195 hours and 49.4 percent of commercial profits to comply with business taxes each year in the Philippines. For these three indicators, the country ranked 132nd, 72nd and 132nd, respectively.
The paying taxes indicator measures tax systems from the point of view of a domestic company complying with the different tax laws and regulations.
In the first 10 months of this year, tax collections slipped 4.8 percent to P925.4 billion from last year’s P972.6 billion.
The Bureau of Internal Revenue (BIR), which contributes more than 75 percent of government revenues, raised a mere P612 billion, or 5.1 percent lower than last year’s P644.8 billion.
The government earlier announced that it already breached its full-year fiscal ceiling at end-October. The budget gap widened to P266.1 billion in the first 10 months this year, or well beyond the P250 billion full-year ceiling.
As a result, the government is expecting a worst-case scenario of a P300-billion deficit this year, even as it hopes to keep the revenue shortfall to P280 billion.
Clear position sought on how to improve collection
A government source said the International Monetary Fund (IMF) has expressed concern over the government’s ballooning budget deficit, and has sought a clear position on how to improve the country’s tax collection.
The source said the IMF, which is conducting its annual Article IV consultation with Philippine authorities, said the country’s tax effort—defined as the tax to gross domestic product (GDP) ratio—is declining as a result of poor tax collection.
The government’s tax effort in the first half of the year fell to 13.5 percent from 14.7 percent last year.
“The IMF is asking what are the means on how to go back to fiscal consolidation,” the official said.
Under Article IV of its Articles of Agreement, the IMF holds bilateral discussions with members, usually every year, wherein a staff team visits the country, collects economic and financial information, and discusses with the country’s officials their economic policies.
The country’s tax effort was lower than Malaysia’s at 15.3 percent; Brunei, 37.5 percent; and Thailand, 15.2 percent. But the Philippines fared better than Indonesia, which has a tax effort of 13.3 percent, state-run Philippine Institute for Development Studies (PIDS) had said.
Benjamin Diokno, a former budget secretary during the Estrada administration, earlier said the next administration is likely to face a fiscal crisis because of weak revenue collections and legislated tax cuts.
The University of the Philippines economics professor said the country’s tax-to-GDP ratio might drop to 11 percent to 12 percent next year from 14 percent in 2007.
The country’s poor tax effort and the effects of the global financial crisis could derail the government’s quest to achieve the Millennium Development Goals (MDGs) by 2015, PIDS had said.
The MDGs are eight time-bound goals aimed at significantly reducing—if not completely eradicating—extreme poverty by 2015. Compared with its neighbors, the Philippines lagged behind in meeting its MDG targets.
RP lags behind neighbors
In the World Bank-PriceWater houseCoopers study, the Philippines also lagged behind neighbors, with Singapore at 5th; Malaysia, 24th; Thailand, 88th; and Indonesia, 127th. Vietnam fared worse, ending up at 147th place.
The report said this year’s top reformer, Timor-Leste, introduced a new tax law, streamlined the business tax regime, and simplified tax administration.
For the third year in a row, Eastern Europe and Central Asia had the largest number of reforms, with 10 economies improving their systems.
Maldives ranked first in the survey followed by Qatar, China/Hong Kong, United Arab Emirates, Singapore, Ireland, Saudi Arabia, Oman, New Zealand and Kiribati.
The report’s data records the taxes and mandatory contributions that a small to medium sized company must pay in a given year, as well as the administrative burden of paying taxes and contributions.
Taxes and contributions measured include the profit or corporate income tax, social contributions and labor taxes paid by the employer, property taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes and vehicle and road taxes.
“Government efforts to streamline tax procedures and reduce time spent on compliance can make an important difference for small and medium enterprises, especially in difficult economic times,” Penelope Brook, World Bank Group Director of the Global Indicators and Analysis department said.
“This year’s top reformer reduced compliance time by over 50 percent by rationalizing tax regulations, simplifying computation rules, and reducing payments,” Brook added.
Susan Symons of Price waterhouse Coopers LLP said the “global recession has meant falling tax revenues and difficult tax policy choices.”
“The challenge is ensuring sufficient public revenues for the future while incentivizing investment and economic growth,” she said. –DARWIN G. AMOJELAR AND MARICEL E. BURGONIO SENIOR REPORTERS, Manila Times
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