THE Department of Finance (DOF) proposed that the next administration implement a set of fiscal measures seen to generate a total average of nearly P350 billion per year from 2023 to 2027 in a bid to help the country outgrow its debt at a faster rate.
With just a little over a month left before the Duterte administration ends, finance officials on Wednesday finally unveiled their three-package proposed fiscal consolidation and resource mobilization plan which included the imposition of several taxes, among others.
To prevent the government from using borrowings to pay for the P3.2 trillion in incremental debt that the government incurred during the Covid-19 pandemic, the Bureau of the Treasury said at least P249 billion per year in incremental revenues must be raised. Estimated to generate an annual average of P349.3 billion in revenues, the proposed fiscal consolidation plan will not only help the government accomplish this, but will also help the country reduce its debt as a share of its economy—from the projected 60.7 percent this year to 55.4 percent in 2025. Without the reforms, the country’s debt-to-GDP ratio in 2025 is seen to reach 58.2 percent.
Finance Secretary Carlos G. Dominguez III told reporters that their proposed “comprehensive” plan which contains measures that are “fair, efficient, and corrective” will help the new administration address the long-term financial issues brought about by the Covid-19 pandemic as well as the ongoing Russia-Ukraine crisis.
“The plan is doable and is designed to secure the gains that we have made under the Duterte administration and to ensure that the government can continue to make economic investments and pursue programs for recovery, maintain its high credit ratings, grow out of its debt faster, and cushion the Philippine economy from future external shocks,” Dominguez said.
‘Serious consequences’
THE finance chief warned that there may be “serious and spiraling consequences” to the country’s financial and economic health if the fiscal consolidation plan is not pursued.
Finance Officer-In-Charge Undersecretary Valery Joy Brion of the department’s Strategy, Economics, and Results Group pointed out that fiscal and economic crises may ultimately result from doing away or even just diluting the proposed fiscal consolidation plan.
Of the total annual estimated average revenue from the implementation of recommended fiscal measures, about 41 percent or an average of P142.5 billion yearly is expected to come from its proposals to expand value-added tax (VAT) base, repeal some VAT exemptions, and from the possible VAT rate reduction next year.
However, Brion stressed the need to consider expanding the base first before considering the cut in VAT rate.
“For the expansion of VAT base and the possible VAT rate reduction, we seek to limit VAT zero-rating to direct exports and to repeal VAT exemptions, except for education, agricultural products, health, financial sector, and raw food,” Brion said.
On top of this, she said they also propose to consider repealing the immediate expending of input VAT on capital goods under the Tax Reform for Acceleration and Inclusion (TRAIN) law and reimposing the 60-month limit to credit input VAT on capital goods.
Deferment of PIT cuts to ’25
MEANWHILE, the DOF is also proposing the 3-year deferment of the scheduled second tranche reduction in personal income tax (PIT) rates to 2025. It was originally set to be implemented next year under the TRAIN law.
Based on DOF’s estimates, the deferment in the cut in PIT rates will result in an additional annual average of P97.7 billion in revenues yearly.
For next year, the DOF also recommended these measures: the imposition of single and unitary rate based on the gross vehicle weight of all motor vehicles (annual average of P38.3 billion in revenues), imposition of excise tax on pickups and motorcycles (P19.2 billion), imposition of 12-percent VAT on digital service providers (P13.2 billion), imposition of taxes and charges on gaming (P13.1 billion), and rationalization of mining fiscal regime (P11.4 billion).
Likewise, the DOF also suggested imposing a P20 excise tax on single-use plastics (P1 billion), expanding the coverage of tax on non-essential and semi-essential goods, and strengthening tax administration for income tax on social media influencers.
The two remaining packages under the Duterte administration’s Comprehensive Tax Reform Program which are still pending in the Senate—Passive Income and Financial Intermediary Taxation Act (Pifita) and the Real Property Valuation and Assessment Reform Act—were also included in the proposed fiscal consolidation plan.
For 2024, the DOF also projected P91.4 billion in revenues from its proposed reform on health taxes, which include increasing excise tax on cigarettes and e-cigarettes, imposing a unitary rate of P12 per liter volume on sweetened beverages, and taxing alcopops the same as fermented liquors.
It is also eyeing an annual average of P35.4 billion from its proposals to increase petroleum excise tax by P1 per liter for at least 3 years, repealing Presidential Decree 972 and imposing and increasing excise tax on domestic coal, and raising excise tax rates on imported coal.
Other measures included in DOF’s plan include clarifying the tax treatment for cryptocurrency transactions and strengthening Bureau of Internal Revenue’s capacity to perform transfer pricing audit.
For 2025, the DOF also listed the imposition of tax on carbon emissions.
As of end-March, the national government’s outstanding debt has hit a new record-high of P12.68 trillion. The government resorted to more borrowings amid the Covid-19 pandemic due to weaker revenue collections and increased spending brought by Covid-related expenditures.
The national government’s debt-to-GDP ratio has also risen to a 17-year-high at 63.5 percent, above the internationally recommended 60-percent threshold by multilateral lenders for emerging markets like the Philippines and also the highest since the country’s debt-to-GDP ratio hit 65.7 percent in 2005 under the Arroyo administration.