WB urges Phl to broaden tax base

MANILA, Philippines - The World Bank is strongly urging the Aquino government to broaden its tax base and initiate reforms in the implementation of the so-called sin taxes on tobacco and alcohol.

The global financial and development institution said the Philippines could only attain its Millennium Development Goals (MDG) with an increase in tax revenues.

It made the recommendation in its Philippine Quarterly Update report released recently.

The report said the Aquino government must heighten revenue mobilization if it wants to support spending that would lead to more sustainable growth in the face of negative external conditions.

The World Bank estimates that public spending on priority areas such as education and health requires an increase expenditures of five to seven percent of gross domestic product (GDP).

That means that the fiscal space from budget efficiency improvement needs to be fed by higher revenue mobilization through tax administration and collection efforts.

“As stated in President Aquino’s 2012 budget message, Congress should sustain its fiscal consolidation agenda by enacting a fiscal responsibility bill and refrain from enacting revenue-eroding measures or expenditure-generating laws that are not supported by additional revenues,” it said.

The report further stated that the National Government “needs to make significant progress in broadening the tax base and reforming sin taxes.”

The World Bank recounted that the country’s total revenue for 2012 was targeted to increase 11.1 percent to P1.569 trillion. “But as a share of GDP, total revenue is to decline by 1.4 percentage points to 14.2 percent of GDP in 2012,” it pointed out.

It further laid out that total tax collection is targeted at P1.446 trillion for 2012, an increase of 13.5 percent. Total spending grows 10.4 percent (year-on-year) but represents 16.5 percent of GDP in 2012, a decrease by 1.7 percentage points.

“The budget is therefore designed to narrow its fiscal deficit by 0.6 percentage points to 2.6 percent of GDP, to attain the medium-term target to achieve a fiscal deficit of two percent of GDP by 2013,” it added.

The Aquino government aims to reconfigure its foreign-to-domestic borrowing mix to 25:75 from the 2010 ratio of 34:66, to insulate the economy from the external environment.

Meanwhile, the World Bank’s modest downward revision of 4.5 percent from the original five percent growth outlook for the Philippines this year depends largely on the National Government’s ability to implement delayed projects. It also hinges on improvements in the global trade environment.

“Greater-than-expected weakness in the global economic activity is estimated to cut down our growth forecast by at least 0.1 percentage point while subdued government spending is estimated to pull down the forecast by 0.2 percentage point – translating to a reduction of 0.3 percentage point from our forecast or a 4.2 percent GDP growth in case both events materialize,” the World Bank report added.