IMF official says RP needs to improve tax administration

The Philippines needs to improve its tax administration and collection efficiency to continue to attract foreign and domestic investments, according to an official of the International Monetary Fund (IMF).

IMF resident representative Reza Baqir said for the Philippines to raise its tax efforts, it must reform its tax administration as well as increase its efficiency in tax collections.

 “The Philippines must also rationalize its fiscal incentives for businesses and reform its excise tax policies,” Baqir said in forum sponsored by the United Nations Conference on Trade and Development (UNCTAD) recently.

Quoting studies by the World Bank and the International Finance Corp. on the competitiveness of the Philippines in the global business community, Baqir said one of the major concerns raised by businesses is the prevailing tax environment.

The global ranking of the Philippines sank deeper from 136th in 2007 to 140th this year. When the study was launched in 2005, the Philippines ranked 113th.

From the existing four-tier system of taxation, the IMF official recommended that it should be reduced to just one level. “Why does it have to be so complicated?” Baqir said.

He said one particular area of concern is in the so-called sin taxes, or taxes imposed on cigarettes and liquor.

The IMF said among the major revisions on the sin tax regimen would be its conversion to specific tax, that it should be higher than the weighted average and that the excise tax should be indexed to inflation.

Based on earlier studies, excise taxes were equivalent to 2.6 percent of gross domestic product (GDP) in 1997. It has since decreased to 1.6 percent in 2006.

Meanwhile, International Finance Corp. (IFC) resident representative Jesse Ang said the fiscal reforms already initiated by the government must be completed if the Philippines wants to remain competitive.

“Major initiatives have been undertaken in key sectors. To have an impact on the business climate indicators and achieve higher economic growth, it is imperative for the country to stay on course, hasten the process, and complete the reforms,” Ang said.

The reforms include establishing a web-based registry system and implementing the anti-red tape law to ensure speed and transparency in government transactions with the public.