Tax collection shortfall traced to exemptions

MANILA, Philippines - The government failed to meet its tax effort target for 2008 because of the implementation of a law that increased the exemptions of taxpayers last year.

Finance Secretary Margarito Teves said the tax effort last year – or the ratio of tax collections to gross domestic product (GDP) – stood below the target of 14.4 percent.

Nonetheless, Teves said the Bureau of Internal Revenue (BIR), the government’s main collection agency would step up efforts to generate more taxes this year.

He said that for 2009, the government hopes to improve the tax effort to 14.3 percent from a previous program of 14.7 percent. In 2007, the tax effort was 14 percent.

The revised program took into account tax revenues of P1.153 trillion or P865 billion from the BIR, P277.2 billion from the Bureau of Customs (BOC) and P10.4 billion in revenues from other offices.

This was revised from the original tax revenue program of P1.238 trillion or P910 from the BIR, P317 billion from the BOC and P10.4 billion in revenues from other offices.

However, increasing the country’s tax effort this year poses a challenge to the government given the lowering of corporate income tax rate to 30 percent from 35 percent for 2009 as mandated by the

Reformed Value Added Tax (RVAT) law of 2005.

The law raised the sales tax to 12 percent from 10 percent and lifted exemptions on oil and petroleum products. It also increased the minimum corporate income tax to 35 percent from 32 percent, but this would be reduced to 30 percent starting this year.

The implementation of a law that increased the exemptions of taxpayers last year would also cut revenues.

The implementation of Republic Act 9504, the law that increased the personal exemptions of taxpayers is expected to translate to P11 billion in revenue losses for the government.

Senator Edgardo Angara earlier urged the government to improve the Philippines’ tax effort, saying that the rate is very low compared to the levels in Southeast Asia.

The country’s tax effort was 14.3 percent of GDP in 2006 while the Southeast Asian average was 16.2 percent, Angara has noted.

Neighboring countries such as Malaysia have a tax effort of 18 percent, the lawmaker has said.

Angara, who also chairs Senate Committee on Banks, Financial Institutions and Currencies, said the government should bring the tax effort back to pre-Asian crisis level which was 17 percent.