State-run National Tax Research Center (NTRC) warned policy-makers that earmarking road tax or motor vehicle users’ charge (MVUC) for road infrastructure may not be beneficial to the government because this will reduce budget flexibility.
The NTRC explained earmarking funds is one of the ways to ensure steady and reliable funding for priority programs, such as road infrastructure. However, the think tank said this setup “could lead to financing of less important road infrastructure in one place over the urgent need in other places.”
“It could be pointed out that the provision of earmarked fund for the purpose of road infrastructure makes the construction and maintenance of roads automatic; that is, the need for infrastructure is dependent on the earmarked fund and not on the program needs relative to road infrastructure,” NTRC said in its tax research journal titled “Administration and Disposition of the Road Tax Among Asean and Selected Countries.”
Aside from reduction in budget flexibility, the NTRC said earmarking the funds can also lead to less transparency and accountability.
In the Philippines, NTRC said the earmarked funds are utilized for road construction and maintenance and road safety projects.
But other countries like Finland, Germany, Norway and Sweden remit their collection from road user charges to the general treasury to finance not only road expenses but also other government expenditures, NTRC said.
Thus, these countries source their road infrastructure and maintenance financing through appropriations from the general treasury.
The NTRC cited a 2011 study that concluded earmarking of motor vehicle revenue for highway maintenance programs is neither efficient nor effective since these revenues are pro-cyclical or susceptible to revenue fluctuation, thus low in financial viability and reliability.
Moreover, the NTRC cited that Finland and Norway also conduct a cost-benefit analysis first before undertaking any road infrastructure project.
“In the end, the effective and efficient administration and disposition of the MVUC fund is essential in maintaining road networks and addressing traffic congestion, and air pollution, among others,” it said.
The BusinessMirror earlier reported that the government is looking for other options to raise revenues starting this year given the impact of Covid-19 pandemic on the economy.
According to a presentation of Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua to the House of Representatives—a copy of which was obtained by the BusinessMirror—the economic team is backing the proposal by Albay Rep. Joey Salceda to increase the motor vehicle road user’s tax.
Based on the economic team’s projections, applying such tax could raise additional revenues of P10.8 billion in 2021, P25.8 billion in 2022 and P38.2 billion 2023.