IMPROVING ENFORCEMENT, raising excise tax rates on some products and streamlining investors’ fiscal perks are a preferable option for government as it seeks to boost revenue collections, a policy note the Asian Development Bank (ADB) uploaded on its Web site last Sept. 30 said.
“Over the decades, the Philippines has suffered from persistent fiscal imbalances, resulting in consistently low delivery of public services such as infrastructure, education and health,” noted the study, authored by ADB senior economist Norio Usui.
The study, titled “Tax reforms toward fiscal consolidation: policy options for the government of the Philippines,” was based on a paper prepared in July last year when the current administration assumed office.
In its efforts to improve collections from recurring sources of revenues, the government had been faced with “two contrasting approaches,” the study noted.
The first option involved:
• increasing value-added tax (VAT) rate to 15% from 12%;
• reducing corporate income tax rate to a range of 20%-25% from the current 30%; and
• increasing excise tax rates for tobacco and alcohol products, as well as for fuels.
The study noted the second option involved:
• intensifying efforts to improve voluntary compliance with personal income tax;
• stronger enforcement by revenue collectors; and
• streamlining fiscal incentives.
In assessing these approaches in terms of efficiency in raising collections while ensuring fairness in tax burden, the study noted that hiking the VAT rate while cutting corporate income tax rate would not increase collections sufficiently to support spending for public services.
At the same time, it noted a “dramatic decline” of 1.8 percentage points in excise taxes in proportion to gross domestic product from 1997 to 2009, while ratio of personal income tax paid to total spending has been declining for high-income households compared to low-income ones.
This, the study said, despite the fact that excise taxes are relatively easier to administer, burden richer households more since they spend more on gasoline, and entail benefits like reduced traffic, accidents, pollution and hospitalization costs.
Zeroing in on a key constraint, the study noted that “tax authorities’ capacity in detecting and enforcing tax liabilities is limited.”
“Our assessment suggests that…the best policy option for the new administration is to improve tax administration and rationalize taxes without changing major tax rates, and charge higher excise taxes on tobacco, alcohol products and gasoline with inflation adjustment,” the study concluded.
The study’s prescriptions, in fact, are reflected in the current administration’s efforts to shore up revenues.
The administration started this effort in July last year with moves to plug leakages in collection, primarily through regular filing of cases against suspected tax evaders and smugglers, as well as their accomplices among revenue officers.
Of late, this thrust has been expanded to cover professionals like lawyers and doctors, a number of whom have long been suspected of shortchanging government through massive underdeclaration of income.
Efforts do not end there, as the latest list of 13 priority bills adopted in mid-August by the Legislative Executive Development Advisory Council includes a reform that restructures excise tax on alcohol and tobacco products and subjects their rates to automatic adjustment according to inflation.
An earlier, longer list of 23 legislative priorities included a bill that seeks to streamline fiscal incentives in order to avoid giving these to investors who would have put up their projects in the country without such perks anyway.
That measure — House Bill No. 4935 — was approved on third and final reading by the House of Representatives last Aug. 17.
Senate leaders had said then that they expect their chamber to do the same by yearend.
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Source: Business World, Oct. 5, 2011
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