Sans leakages, tax effort can reach 16% of GDP — DOF

Finance officials said the government could improve its tax effort in 2007 to nearly 16 percent of gross domestic product (GDP) if current tax administration measures are sustained and further improvements in plugging tax leakages prove successful.

The Department of Finance (DOF) said over the weekend the 2007 tax effort is expected to improve to 15.6 percent of GDP, from 14.3 percent in 2006.

According to the DOF, the tax effort of the Bureau of Internal Revenue (BIR) is expected to improve to 11.6 percent this year from 10.7 percent in 2007.

The projected improvement is attributed primarily to the value-added tax which is considered largely self-administering with redundant checks and balances embedded in the system.

The Bureau of Customs (BOC), on the other hand, is projected to largely maintain its current tax effort at 3.6 percent this year, from 3.2 percent last year.

The Arroyo administration has already revised its fiscal program for 2007, lowering the target collection of the BIR from P802.3 billion down to 784.1 billion.

The Development Budget Coordination Committee said the adjustment incorporates the impact of lower withholding tax collections and lower interest rates.

The BIR had struggled to meet its collection target in 2006, arguing that its revenue generation was adversely affected by the decline in government borrowing and the decline in interest rates.

Both factors, according to the BIR, had been eating into the tax on interest incomes as well as the taxes on government securities which had declined because the government was borrowing less than it used to.

The DBCC also downscaled the projected collections of the BOC from P235.1 billion to P228.1 billion.

The DBCC said it expected BOC collections to decline as a result of the appreciation of the peso against the dollars which meant that import valuation would go down because of the stronger peso.

According to the DBCC, however, the downscaling of BIR and BOC’s projected revenue collections would be offset by the proceeds expected from the sale of government shares in Philippine Long Distance and Telephone Co. (PLDT).

As a result, the DBCC said the total revenue collection is expected to stay at the P1.1 trillion level presented by the Arroyo administration before Congress under the proposed 2007 budget.

Keeping the deficit target of P63 billion, the DBCC said public expenditures would stay at P1.2 trillion as proposed.

"The P14 to P15-billion savings in interest payments on account of lower interest rates and foreign exchange rates are expected to be made available for the implementation of additional capital projects," the DBCC said over the weekend.

The Arroyo administration has upgraded its growth target for

2007, saying it expects the gross domestic product to expand much faster at 6.1 to 6.7 percent.

The original growth target under the 2007 budget was pegged at 5.7 to 6.5 percent but economic officials said they are expecting better economic output this year due to surges in investments.