Low rates, less borrowings trim taxes on government papers

MANILA, Philippines - The low interest environment and lesser borrowings are biting back the government in the form of declining revenues from securities.

According to data from the Bureau of Internal Revenue (BIR), taxes on government securities amounted to P30.745 billion as of November last year, down 0.72 percent from a year ago.

The amount is also on track to become the lowest since 2011 when collections reached P25.95 billion. The 2012 tally was P35.15 billion.

“Definitely, if the interest environment is low, then for sure we will also get lower taxes because the tax is charged on interest income,” Internal Revenue commissioner Kim Henares said in a phone interview.

Interest earned by bondholders are charged with 20-percent final tax, which the Bureau of the Treasury remits to the BIR.

As of November last year, average Treasury bond yield declined to 5.58 percent from 6.28 percent by end-2013, Treasury data showed.

Offshore securities, on the other hand, fetched an average of 6.56 percent, down from 7.18 percent in 2011.

Aside from flooring interest rates, Nicholas Antonio Mapa, economist at Bank of the Philippine Islands, said rejections and partial awards on auctions are also to blame.

“It came back to bite them,” Mapa said in a separate phone interview.

The government sells T-bonds and Treasury bills every other week to borrow from local investors. In turn, investors gain interest from the papers over a specific period.

In November alone, however, issuances of T-bonds decreased 55.62 percent, while more T-bills were redeemed and paid than issued.

“As you may notice, the government has made several partial awards and rejections, especially at the latter part of the year. This really contributed,” Mapa said.

“Nevertheless, I think this (tax on securities) should not be emphasized too much. I think they should collect more revenues elsewhere,” he added.