New tax plan aims to raise P50B/yr in add’l revenues

The government’s incentive program will be the hardest hit by a proposed tax rationalization plan that is intended to generate at least P50 billion yearly in additional revenues until the budget is balanced in 2009.

Emerging from a meeting yesterday, the country’s top economic managers said there is no more room to cut the national budget and avert a debt crisis. They said supporting growth and balancing the budget will require painful measures.

The economic managers are finalizing the economic program with the proposed measures to be presented to President Arroyo for approval and presentation to Congress via the State of the Nation Address this month.

The National Economic and Development Authority (NEDA) said yesterday that the National Power Corp. (Napocor) has been the biggest cash drain as the government assumed its obligation under the Electric Power Industry Reform Act (EPIRA).

NEDA Director General Romulo Neri said the government will have to take on a long list of painful measures to reverse the spiraling decline in revenues, rising debt and slowdown in growth resulting from repeated and severe cuts in public spending.

Neri said the government will need at least P50 billion a year in additional revenues.

Neri said one of the biggest loopholes in the incentives program is the five-percent tax on the gross income of qualified corporations instead of the 33 percent tax on net income.

The problem, Neri said, is that the so-called gross income is pared down with various exemptions and deductions.

"To our mind, its better to lower the tax rate as long as all discrepancies and discretions are removed," Neri said.

Neri said the proposal to impose a new excise tax on oil and petroleum products is no longer in consideration. "We will talk about that only when and if oil prices go back to previous levels," he said. "We are realistic enough to know that this measure would never go through Congress."

According to the Bangko Sentral ng Pilipinas (BSP), there is no more room in the national budget for further cuts without severely impairing growth.

BSP Governor Rafael Carlos Buenaventura said the plan to streamline the bureaucracy will only prevent public spending from going up further.

"If anything, capital expenditures have to go back to pre-1997 level," Buenaventura said. He said the Chief executive will have to make critical decisions on how to deal with Napocor’s huge debt.

According to Budget Secretary Emilia Boncodin, capital expenditures by the government have declined to 12 percent of the national budget, equivalent to 2.3 percent of gross domestic product.

"We have to bring this back up to 17 percent of the budget and that would be equivalent to three-four percent of the GDP," Boncodin said.

Boncodin said this is possible only if government succeeds in streamlining its bureaucracy and if the revenue measures would be implemented in full.

"It will have to happen in all forms – administrative, executive and legislative," she said. "The administrative measures can be done in the meantime, but there is also a greater imperative to get all the legislative measures done."

All three officials said the final outline of the program will have to be approved by the president since she would be responsible to certifying them for presentation to Congress.

"She will have to decide which of these measures will be pushed," Buenaventura said. "But we are making these proposals based on what we think are the best steps to take and the best approach to a very large problem."