Camacho calls for tax reforms to address budget deficit

Finance Secretary Isidro Camacho has presented a "road map to fiscal deliverance," consisting of a package of tax, economic and fiscal reforms, as an alternative to the nation’s "road to crisis."

In a policy address to the Rotary Club of Makati at the Manila Peninsula Hotel in Makati, Camacho discussed the causes of the recurring fiscal deficit, and proposed a package of "policy changes and structural reforms (that) will be needed to bring us back to fiscal balance."

Camacho, however, said that through administrative initiatives, the government was able to reduce the deficit from P82.9 billion last year to only P75.4 billion or by 30 percent this year through administrative measures that increased tax collections.

The Bureau of Internal Revenue (BIR) increased its collection by 10.7 percent from January to May this year compared to the same period last year, while the Bureau of Customs (BOC) exceeded its 2002 collection by 18.9 percent and its target by 11.4 percent, Camacho said.

The finance chief traced the country’s "fiscal deteriorating" over the past 10 years to a "tariff reduction program over the last decade (that) eroded our revenues to GDP (gross domestic product) by as much as four percent of GDP."

He noted that at the start of the 1990s, the Philippines "took a lead in trade liberalization and reduced tariffs at a pace even faster than our international commitments under WTO (World Trade Organization) and AFTA (Asean Free Trade Agreement)."

Then followed a series of "tax reforms" that also eroded the tax base, such as a reduction of the income tax rate from a maximum of 35 percent to 32 percent, and the imposition of specific taxes without indexation for such commodities as tobacco, alcohol and petroleum products.

The 1997 financial crisis was a "double whammy" that not only eroded the tax base but also increased the debt service of foreign obligations because of the devaluation of the peso from P26 to P52-P53 to the dollar.