MANILA, Philippines - Standard & Poor’s (S&) has expressed disappointment over Congress’ failure to pass three pending revenue measures as it warned that without these measures, the Philippines remains vulnerable to external shocks.
These are the measures seeking to raise taxes on alcohol and cigarettes, simplify the country’s net income taxation scheme and rationalize the tax incentives given by the government to local and foreign investors, S&P senior analyst Agost Benard said.
Benard said the delay in the passage of the measures and the inefficiencies of the Bureau of Internal Revenue (BIR) prevent the government from spending on crucial areas such as infrastructure projects.
“The long delay by Congress in passing crucial revenue measures is regrettable, as it prevents a much needed expansion of the revenue base. The low revenue base coupled with collection inefficiency in turn, constrain the government’s ability to spend on needed human and physical infrastructure,” Benard said in an e-mail interview during the weekend.
Furthermore, he said the delay in the passage of the three measures also prevents the government from reducing the budget deficit.
“It also delays the reduction of the fiscal deficit and associated debt burden, thereby prolonging the country’s still relatively high vulnerability to shocks, such as adverse exchange rate movements,” Benard said.
The Development Budget Coordination Committee (DBCC), the interagency group that sets the country’s macroeconomic targets, has revised the 2009 deficit ceiling to a whopping P250 billion from P199.2 billion previously.
It also lowered the economic growth assumption for 2009 to a range 0.8 percent to 1.8 percent from a previous forecast range of 3.1 percent to 4.1 percent.
Last week, the Department of Finance (DOF) had agreed to defer to 2012 the adoption of a new tax structure for sin products on the back of strong opposition from cigarette manufacturers.
Cigarette manufacturers urged government should defer an increase in the taxes on alcohol and cigarettes because of the global financial turmoil.
According to government estimates, the proposed amendments to the sin tax law could raise as much as P19 billion to P20 billion in the first year of implementation, P30 billion to P40 billion in the second year, P40 billion to P50 billion in the third year and P60 billion to P70 billion in the fourth year.
The Finance department said the current tax structure for cigarettes is inequitable because products having the same current net retail price can be taxed differently if one was introduced before January 1997 and another one after 1997.