Gov’t tax effort rises to 14% of GDP

MANILA, Philippines - The government’s tax effort rose to 14.1 percent of the country’s gross domestic product in the nine months through September from only 13.7 percent in the same period last year, mainly driven by efforts to improve tax administration and expenditure management.

Tax effort refers to the ratio of tax collection to gross domestic product (GDP) or the total value of goods and service produced and paid for within an economy in a given period.

It measures the government’s ability to shore up tax collection commensurate with the growth of the economy.

The country’s tax effort hit a high of 17 percent prior to the Asian financial crisis.  Although the economy has sprung back to life, tax effort stayed below 17 percent.

Finance Secretary Cesar Purisima said the country also made significant gains in revenue effort – a key measure of ability to increase state funds as the economy expands  – inching up to 15.8 percent from 15.7 percent.

Revenue effort is computed as the proportion of the government’s revenue collection to GDP.  It stood above 18 percent before the Asian currency crisis in 2007.

To ensure  efficiency in tax collection, a government must be able to raise the amount of taxes it collects every time income grows.

Besides administrative measures, rising tax collections helped boost state revenues.

The Bureau of Internal Revenue and the Bureau of Customs are the government’s biggest revenue earners, together making up more than 80 percent of total revenues.

 “This notable improvement in collections has been the fruit of automation of tax processes, a heightened campaign against smugglers and tax evaders, and sustained reforms, especially in the Bureau of Customs,” Purisima said.

Purisima said he expects the country’s revenues to further improve in the medium term with  the Philippines taking on a more active role in the global fight against tax evasion.

 “These latest tax and revenue effort figures, along with manageable national and general government debt levels, clearly manifest that the Philippines continues to stand on firm fiscal footing, which remains to be at the core of our country’s growth story,” Purisima added.