Weakening tax take a concern for World Bank
Businessworld | 05/07/2009 12:16 PM
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The success of the government’s P330-billion stimulus package largely hinges on a "controlled fiscal easing" but given underperforming tax revenues, spending may not turn out as planned or could lead to a wider-than-projected deficit, the World Bank yesterday said.
In its "Quarterly Economic Update" on the Philippines, the Washington-based lender warned that tax revenues could fall to their lowest in nearly three decades if the government fails to fast-track revenue measures, including a proposed hike in the gasoline excise tax.
The P330-billion "Economic Resiliency Plan" (ERP) is anchored on expenditures that will account for 18.9% of gross domestic product (GDP) this year — a 1.8 percentage point increase from 2008 — and revenues equivalent to 14.3% of GDP for 2009, up 0.3% from last year.
It consists of P160 billion from increased state spending that will come from the national budget, P100 billion to finance extra-budgetary infrastructure projects, P30 billion in social protection benefits, and P40 billion in general tax cuts.
But judging by the performance of the revenue agencies in the first quarter, the World Bank said taxes as a proportion of GDP could drop to 13.1% this year, lower than state projections.
"The success of the finely tuned ERP relies on implementing a controlled fiscal easing... as the ambitious and front-loaded expenditure plans are transformed into actual spending, the budgeted revenue collection also ought to be delivered upon," the report states.
"A significant weakening of tax collection, however, is materializing and the BIR (Bureau of Internal Revenue) could post its first negative annual nominal collection since at least 1981... Far from the budgeted increase in the tax-to-GDP ratio (from 14% in 2008 to 14.3% in 2009), the World Bank is now projecting that ratio to drop to 13.12%."
Total revenue collection in the first quarter of this year accounted for 2.5% of GDP, a 0.4% drop from last year, as the BIR and the Bureau of Customs reported contractions of 7% and 12%, respectively.
The World Bank noted the decline could have been sharper had the rise in inflation in March and a reduction in the corporate income tax — expected to be booked only in April and May — been factored in.
"Failing to contain the projected fall in the tax effort could jeopardize the size of the planned expenditure increase, and/or generate large deficits," it said.
The government wants to cap its budget shortfall at P199.2 billion for 2009, or 2.5% of GDP.
The multilateral is pushing for an increase in the gasoline excise tax as it pointed out that proposed measures — the restructuring of the excise tax on sin products, rationalization of fiscal incentives, and simplification of taxation scheme on net income — have yet to gain ground in Congress.
"To ensure quality implementation of the fiscal stimulus plan, the government could consider further desirable revenue measures, such as raising gasoline excises," it said.
"Petroleum products in the Philippines are lightly taxed by international standards for an oil-importing country (though retail prices are not particularly low)."
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