NEDA calls for new taxes

Govt reforms to attain fiscal stability wanting

THE Aquino administration has to impose new taxes as its tax administrative reforms are insufficient to meet fiscal balance in a sustained manner, according to a study by the National Economic and Development Authority (NEDA). In the study, “A Strategic Framework and Action Plan for Inclusive Growth,” NEDA said that tax efficiency requires right tax policies and rates to encourage compliance and minimize leakages.

Citing estimates made by the Department of Finance, it added that about 35 percent of potential tax collections by the Bureau of Internal Revenue and 20 percent of such collections by the Bureau of Customs are lost to leakages.

The NEDA study estimated that individual tax leakage could total at least P214.14 billion for 2011 to 2016.

According to the 2006 estimates of the National Tax Research Commission, individual income tax gap or leakage from 2001 to 2005 averaged P35.74 billion annually.

Given this leakage, NEDA said, “the passage or implementation of pending priority measures that form part of the revenue package is earnestly sought.”

The study cited priority tax legislative measures for 2011 to 2016, which include a system-wide improvements in tax administration; restructure of the excise tax on petroleum products by adopting a two-rate structure; increase in value-added tax (VAT) rate but reduction in income tax; restructure of excise taxes on sin products, e.g., adoption of a unitary rate and indexation to inflation; and rationalization of fiscal incentives.

NEDA said that restructuring the excise taxes on petroleum could raise about P342.99 billion; enhancing VAT and reducing corporate and income taxes,
P326.62 billion; and restructuring and indexing of excise tax laws, P258.46 billion.

The Department of Finance estimated that passage of the Rationalization of Fiscal Incentives bill would generate P10 billion in revenue savings a year.

Earlier studies showed that the cost of income tax holiday alone ranged from P10.6 to P18.5 billion annually, which is quite large relative to the P44 billion estimate of corporate income tax in 2000.

The NEDA study said that the higher deficit arose mainly from weak government revenue collection as the tax effort declined again as early as 2007.

A Finance official earlier said that the government may miss its tax effort goal of 13.9 percent this year despite expectations of faster economic growth.

Tax effort measures the government’s efficiency in collecting taxes and is computed by dividing collections into gross domestic product (GDP), which is the amount of final goods and services produced in the country in a year.

For 2011, the Aquino administration is aiming to advance the tax effort to 14.1 percent to support its proposed P1.645 trillion budget, which would entail a P290 billion deficit or about 3.2 percent of GDP.

The Philippines’ economic managers aim to end the Aquino administration’s six-year term with a 15-percent tax effort, which is still below the Asian average of 16 percent.

“Enhancing revenues is imperative not only to reduce [the administration’s] budget deficit to maintain macroeconomic stability, but also to provide more resources for the infrastructure and social spending of the government. This could catalyze and contribute immensely to inclusive growth,” the study said.

This year, the government expects a budget deficit of P325 billion, or 3.9 percent of GDP.

Next year, the Aquino administration targets a funding gap of P290 billion.

The NEDA study was made possible by the Asian Development Bank’s technical assistance.

The chairman of the Steering Committee was NEDA Deputy Director General Margarita Songco, while Director Jonathan Uy of the NEDA Public Investment Staff headed the Technical Working Group.

Professor Dante Canlas of the University of the Philippines School of Economics was lead consultant

The study was in line with NEDA’s mandate as the planning agency of the national government and in preparation for the next Medium-Term Philippine Development Plan (MTPDP).

The government expects to complete the MTPDP for 2011 to 2016 by end of the year. –DARWIN G. AMOJELAR SENIOR REPORTER, Manila Times