PHL has room to increase taxes – IMF

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE PHILIPPINES’ FThe iscal consolidation plan may be too “ambitious,” the International Monetary Fund (IMF) said, noting that the government still has room to raise taxes to raise much-needed revenue.

IMF Mission Chief Elif Arbatli Saxegaard said the Philippine government will continue its fiscal consolidation over the medium term, albeit at a slower pace than initially expected.

During a press conference on Monday, she said that of the government FThe iscal consolidation targets remain ‘ambitious’.

“It is true that fiscal consolidation is slower in the medium term and this is driven by slower revenue mobilization and at the same time there is also a shift towards higher infrastructure spending,” she said.

In addition to improved tax administration, Ms. Saxegaard said the government could consider raising taxes to raise more revenue.

“We believe there is significant opportunity to increase revenues through tax administration measures… But we also believe there is also room to increase revenues, including through more stringent tax measures,” she said.

This year, the government set the deficit ceiling at 5.6% of gross domestic product (GDP), equivalent to 1.48 trillion euros. The government aims to reduce the deficit ratio to 3.7% of GDP by 2028.

Finance Secretary Ralph G. Recto previously said there are no plans to impose new taxes within the Marcos administration, but will instead focus on improving tax collection.fficency and privatization of state assets.

“Improvements in tax administration must be complemented by changes in tax policy, in particular to improve the efficiency of value added tax and broaden the tax base,” said Ms Saxegaard.

She noted that the introduction of higher taxes must be timed appropriately.

“The timing is important to implement these measures and we believe that fiscal consolidation is of course possible, but it would be even reinforced by measures that increase revenues.”

The IMF noted that the government can further improve the efficiency of value added tax (VAT) collection.

“This does not necessarily require an increase in the tax rate. But actually broadening the base and improving its implementation could be one area, for example,” said Ms Saxegaard.

The Finance Department reported last year that the Philippines had the lowest VAT efficiency level in Southeast Asia. From 2016 to 2020, the Philippines collected an average of P723 billion in VAT, about 40% of expected VAT collection.

The government could also review existing tax exemptions, Ms. Saxegaard said.

“Some measures could include reducing some of these exemptions and improving the tax refund system, which could increase compliance. That is another potential,” she said.

IMF representative for the Philippines Ragnar Gudmundsson said these exemptions offer “significant untapped revenue potential.”

“There are a large number of exemptions and incentives for companies. The idea is not that incentives should be abolished, but perhaps greater selectivity in granting those incentives and exemptions, and ensuring that they actually contribute to economic growth,” he added.

The IMF also said there is “significant room for improvement” in tax administration, such as boosting digitalization efforts and increasing the ease of compliance for taxpayers.

‘GREY LIST’
Meanwhile, the IMF noted that the country is making continued progress in its efforts to get off the Financial Action Task Force (FATF) “grey list.”

“We are happy to see that there is kind of an all-hands-on-deck approach within the government to really try to get the Philippines off the FATF gray list. It is not an easy process involving many institutions and many parts of government,” Ms Saxegaard said.

“It is a very big undertaking and we commend the efforts of the authorities on this front. They are really committed and I think they are making significant progress,” she added.

The Philippines has been on the FATF list of jurisdictions under enhanced surveillance for dirty money activities since June 2021.

“It is difficult for us to know what the FATF will decide, so it is not for us to speculate. But our hope is that the Philippines will be removed from the list, building on the reform process they have already initiated,” she added.

Ms Saxegaard said if the country can leave the list it would lead to a boost in investment.

“Continued progress in improving the effectiveness of anti-money laundering and countering the financing of terrorism (AML/CFT) and the completion of the Philippine Action Plan with the FATF are critical to improving the business environment and encourage foreign direct investment,” she added.