DOF heeds IMF advice, sets review of tax perks

On the advice of the International Monetary Fund, the Finance Department will start a review of government’s tax incentive program that would include setting a cap on these perks and prioritizing the recipients to the most dynamic sectors of the economy.

DOF Secretary Jose Pardo said the visiting IMF chief of mission Markus Rodlauer had urged the Philippine government to implement a "fiscal consolidation" program starting next year aimed at raising more revenues to attain a more favorable budget balance.

The IMF team has expressed concerns on the country’s continued inability to pump up its revenue flow and adviced Finance officials to scrutinize the tax incentives policy as well as improve tax administration.

If these remain unchecked, the IMF warned the budget gap could balloon to P205 billion – its worst-case scenario – by 2004, instead of achieving a balanced budget as earlier planned.

This year’s budget deficit is expected to hit P120 billion and may rise to the same level until next year without the required revenues to shore it up or the necessary plugs in the revenue loopholes.

DOF estimates place foregone revenues due to the tax incentive packages offered by the investment agencies such as the Board of Investments, Philippine Economic Zone Authority, and the Subic and Clark ecozones amount to about P4.2 billion yearly.Bureau of Internal Revenue (BIR) Commissioner Dakila Fonacier, who also briefly headed the BOI, agreed on the need to review the tax perks but categorized that such an issue is "a policy dilemma at the highest level."

He admitted that the current tax incentive program practically favors the agriculture and export sectors, which include top dollar earner electronics and semiconductors industry.