The slackening economic output pulled down the Philippines' tax effort in the first three months of the year, putting more pressure on the government to improve its tax collection measures.

Data from the Finance Department showed that the country's tax effort from January to March slowed to 11.5 percent of gross domestic product (GDP) from 12.9 percent of GDP in the same period last year.

"When times are difficult, taxpayers tend to pay less to save their money. It is up to tax authorities to find this out," Finance Undersecretary for Policy Development and Management Services Gil Beltran said, adding that tax revenues are usually week in the first quarter as the deadline for the payment of income tax falls in the month of April.

The tax effort is the ratio of tax collections to GDP. The indicator mirrors the government's ability to raise revenues for infrastructure and social services.

Tax collections fell by 7.9 percent to P200.74 billion, P18.34 billion short of the government's target of P219.08 billion for the three-month period.

The country's GDP, on the other hand, barely expanded in the first quarter at 0.4 percent from 2.9 percent in the same period last year. The latest figure is much lower than the government's 1.8 to 2.8 percent projection, and is the worst since the final quarter of 1998, during the Asian financial crisis.

As a result, economic managers may consider downscaling their 2009 growth projections for the economy from the current target range of 3.1 to 4.1 percent of GDP.

Meanwhile, Beltran said the government's tax effort is expected to improve to 14.3 percent of GDP this year from 14.1 percent last year.

"We hope tax effort would be buoyant so that it would not be left behind by GDP growth. Tax measures will be intensified and we will push BIR (Bureau of Internal Revenue) and BOC (Bureau of Customs) to do more," he said.

Targets always missed

The tax effort of the Bureau of Internal Revenue fell to 8.9 percent of GDP in the first quarter from 9.9 percent in the same period last year. Collections from the country's main tax agency dropped by 7.1 percent to P154.77 billion, P10.51 billion short of its P165.28-billion target.

Likewise, the Bureau of Customs missed its collection target of P51.34 billion, reporting only P43.11 billion in tax collections for the quarter. As a result, its tax effort dropped to 2.5 percent of GDP from 2.9 percent last year.

The two agencies have consistently missed their revenue collection targets since the start of the year, citing the slowdown in the domestic economy. As a result, the government turns to foreign and domestic creditors to fund its projects.

Last month, Finance Secretary Margarito Teves said the government will step up tax collection efforts and speed up the passage of revenue enhancement measures, saying that the country cannot rely heavily on foreign borrowings for financing given its huge debt stock.

For the first quarter of 2009, the government has paid a total of P291.55 billion in debt, P52 billion higher than the P239.6 billion paid in the same period last year. This was mainly due to higher payments to the country's foreign creditors, which almost doubled as of end-March.

Still, the Philippines is set to obtain a $500-million loan from the Asian Development Bank within the fourth quarter of 2009 to plug its ballooning budget deficit, which is estimated at P199.2 billion for the year.