By Luisa Maria Jacinta C. Jocson, Reporter
THE PHILIPPINES’ fiscal consolidation plan may be too “ambitious,” the International Monetary Fund (IMF) said, noting that the government still has room to raise taxes to generate much-needed revenues.
IMF Mission Chief Elif Arbatli Saxegaard said the Philippine government is set to continue its fiscal consolidation over the medium term although at a slower pace than initially envisioned.
At a press briefing on Monday, she said the government’s fiscal consolidation targets remain “ambitious.”
“It is indeed the case that fiscal consolidation is slower over the medium term and that’s driven by a slower revenue mobilization and at the same time there is also a shift to higher spending on infrastructure,” she said.
Apart from improved tax administration, Ms. Saxegaard said that the government can consider raising taxes to generate more revenues.
“We do believe that there is significant scope to raise revenues through tax administration measures… But we also think that there is also room to raise revenues including through higher tax policy measures,” she said.
This year, the government has set the deficit ceiling at 5.6% of gross domestic product (GDP), equivalent to P1.48 trillion. The government is seeking to bring down the deficit-to-GDP ratio to 3.7% by 2028.
Finance Secretary Ralph G. Recto earlier said there are no plans to impose new taxes throughout the Marcos administration, but will instead focus on improving tax collection efficiency, and privatizing state assets.
“Tax administration improvements should be supplemented with tax policy changes, notably to improve the efficiency of value-added tax and broaden the tax base,” Ms. Saxegaard said.
She noted that introducing higher taxes should be timed appropriately.
“Timing is important to implement those measures and we think that the fiscal consolidation of course is possible, but it would be even more strengthened through measures that raise revenues.”
The IMF noted the government can further improve efficiency in value-added tax (VAT) collection.
“That doesn’t necessarily require an increase in the tax rate. But really base-broadening and improving its implementation can be one area, for example,” Ms. Saxegaard said.
The Finance department last year reported that the Philippines had the lowest VAT efficiency level in Southeast Asia. From 2016 to 2020, the Philippines collected an average of P723 billion from VAT, around 40% of the expected VAT collection.
The government can also review existing tax exemptions, Ms. Saxegaard said.
“Some measures could be to reduce some of these exemptions and improve the tax refund system, which can increase compliance. That’s another potential,” she said.
IMF Representative to the Philippines Ragnar Gudmundsson said that there is a “significant untapped revenue potential” in these exemptions.
“There’s a large range of exemptions and incentives that have been provided to businesses. The idea is not that incentives should be done away with, but maybe greater selectivity in granting those incentives and exemptions, and making sure that they actually contribute to economic growth,” he added.
The IMF also said there is “significant scope to improve” on tax administration, such as boosting digitalization efforts and enhancing ease of compliance for taxpayers.
‘GRAY LIST’Meanwhile, the IMF noted the country’s continued progress in trying to exit the “gray list” of the Financial Action Task Force (FATF).
“We are happy to see that there’s a sort of all-hands-on-deck approach in the government to really try to get the Philippines off the FATF gray list. It’s not an easy process involving many institutions, many parts of the government,” Ms. Saxegaard said.
“It’s a very huge undertaking and we commend the authorities’ efforts on this front. They are really committed, and I think they are making significant progress,” she added.
The Philippines has been on the FATF’s list of jurisdictions under increased monitoring for dirty money activities since June 2021.
“It’s hard for us to know what the FATF will decide, so it’s not up to us to speculate on that. But our hope is that the Philippines gets off the list, building on this reform process that they’ve already initiated,” she added.
Ms. Saxegaard said that if the country can exit the list, this would lead to a boost in investments.
“Continued progress with improving anti-money laundering and combating the financing of terrorism (AML/CFT) effectiveness and completion of the Philippines’ Action Plan with the FATF are critical to improve the business environment and encourage foreign direct investment,” she added.
