IMF pushes excise tax reform measure

MANILA, Philippines - The International Monetary Fund (IMF) has urged the Aquino administration to strengthen tax administration and broaden its tax base by amending its excise tax system on sin products and rationalizing its fiscal incentives to raise much needed revenue to bankroll social and infrastructure spending.

In its latest Public Information Notice (PIN), IMF said the Aquino administration needs to raise revenue collections by 1.5 percent of gross domestic product (GDP) in order to achieve its fiscal objectives.

“In 2012, in order for the budgeted expenditure and deficit objectives to be achieved, an increase in revenue will be required equivalent to 1.5 percent of GDP,” the IMF said.

The Aquino administration has committed to trim the budget deficit to two percent of GDP starting next year until the end of the term of President Aquino in 2016 by improving tax administration anchored on enhanced revenue collection.

“Early actions to simplify the tax system and broaden the base should complement the planned tax administration measures, whose full benefit is hard to predict and will take time to materialize,” it said.

The Washington-based lender said tax administration improvements could yield revenue increases equivalent to 0.5 percent of GDP while reform on sin taxes could raise additional revenue of 0.5 percent of GDP this year and one percent next year.

Consequently, IMF reiterated that additional tax measures are likely needed including measures to reform excise tax on cigarettes and liquor, rationalize fiscal incentives, and address inefficiencies in the value added tax (VAT) to broaden the tax base.

“Such measures would also make the tax system more equitable and easier to administer. In this context, the staff welcomes the authorities’ recent submission of bills to Congress to rationalize sin taxes and streamline tax incentives that would go some way toward raising the additional revenue needed,” it said.

The lender pointed out that the increase in revenue that would be required for fulfilling the deficit and expenditure objectives this year could be delivered by the improvements in tax administration and the sin tax and incentives measures.

It warned that the appetite for tax measures in the legislature may wane as the May 2013 mid?term elections approach.

 “Should these revenue gains prove insufficient for meeting the fiscal objectives, the authorities would reduce non-priority expenditure or speed up privatization to provide additional resources to support spending,” the lender said.

 The Philippines managed to trim the budget deficit to P197.8 billion or two percent of GDP, way below the ceiling of P300 billion or 3.2 percent of GDP this year. Revenues climbed 12.6 percent to P1.36 trillion from P1.21 trillion while expenditures inched up by 2.3 percent to P1.558 trillion from P1.552 trillion.