Tax to GDP ratio down to 11.5% in first quarter

MANILA, Philippines - The government’s tax effort declined in the first quarter of this year compared to the same period in 2008 amid perennial shortfalls in collections of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) and a lower-than-expected economic growth in the first three months of 2009.

Tax effort in the first quarter - or the ratio of tax collections to gross domestic product (GDP) - stood at 11.5 percent compared to 12.9 percent in the same period last year, data from the Department of Finance (DOF) showed.

The tax effort of the BIR alone declined to 8.9 percent from 9.9 percent previously while that of the BOC declined to 2.5 percent from 2.9 percent previously.

Finance officials attributed the decline to seasonality factors and to anemic economic growth in the first quarter of the year brought about by the effects of the worldwide financial turmoil.

“The first three months are not high revenue months unlike the second quarter. These are quiet months…When times are difficult taxpayers tend to pay less to save their money,” Finance Undersecretary Gil Beltran said.

Total revenues during the quarter dropped to P235.4 billion or P17.68 billion lower than the P253.5 billion recorded in the same period last year.

The National Statistical Coordination Board (NSCB) has reported that the country’s economy, as measured by GDP, grew by a measly 0.4 percent from a 3.9 percent expansion recorded in the same period last year.

Seasonally adjusted GDP shrank 2.3 percent compared to the 0.3 percent growth recorded in the last three months of 2008.

NSCB Secretary General Romulo Virola has warned that the Philippines is already on the brink of a recession, with lead economic indicators such as investments in stocks, money supply and inflation on a downtrend.

Asked if the government is still optimistic of meeting the tax effort target of 14.3 percent for 2009, Beltran said the Finance department would strive to still meet the goal.

“We hope our tax collection would be buoyant so that it would not be left behind by GDP growth. Tax administration measures would be intensified. We will push BIR and BOC to do more,” he said.

In 2007, the country’s tax effort was 14 percent.

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 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.

The country’s tax effort was 14.3 percent of GDP in 2006 while the Southeast Asian average was 16.2 percent. Prior to the 1997 Asian financial crisis, the tax effort was at 17 percent.