DOF urges Aquino to introduce new revenue measures

MANILA, Philippines - The Department of Finance has urged the incoming Aquino administration to introduce new revenue measures within its first 18 months or while the people are still very receptive and understanding.

“I hope they won’t (miss out on the opportunity). Because there are valid reasons why we need to raise cigarette taxes and the excise tax on oil products,” Finance Undersecretary Gil Beltran told Palace reporters.

“They need to do it in the first one and a half years because after three years there would be elections and people would no longer be receptive. You have a limited window to do it and if you lose that, then that’s it,” he added.

Beltran noted that the Arroyo administration was able to get the revised value added tax law passed within a year after winning a fresh mandate.

The increase in the VAT from 10 to 12 percent has generated over P80 billion in new revenues in its first year of implementation.

For the next administration, Beltran noted that there are at least four new tax measures that the new Congress can work on immediately that could raise an estimated P67 billion in revenues.

Beltran explained that the excise tax reforms for tobacco, alcohol and petroleum products could generate as much as P40 billion; the rationalization of fiscal incentives, another P10 billion; the simplified net income taxation scheme (P5 billion); and the packaged increase in the VAT rate and lowering of the income tax, at least P12 billion.

President-elect Benigno Aquino III has repeatedly stated his preference for improving tax administration and going after smugglers over introducing new taxes.

Beltran said that an improved tax administration could enhance revenues but that it would take time.

He recalled that during the administration of Aquino’s mother, the late President Corazon Aquino, the additional revenues raised from improved tax administration were only equivalent to 0.6 percent of gross domestic product.

The figure was even lower at 0.5 percent of GDP during the Ramos administration.

Beltran argued that raising taxes is somewhat inevitable because of the multitude of tax breaks granted by Congress – P62 billion in 2009 and another P46 billion this year.

“That’s P108 billion. It’s too much. They granted too many tax breaks,” Beltran said.

But if Congress agrees to lift the tax breaks, then new revenue measures may no longer be needed, according to Beltran.

‘Proactive’ debt management

Beltran also said President Arroyo has undertaken a “proactive debt management” strategy that helped lighten the country’s obligations.

Beltran told a news briefing that the laws and administrative issuances that supported the capital market include Republic Act (RA) 9505 or Personal Equity and Retirement Account (PERA) Law, RA 9510 or the Credit Information System Act (CISA), enacted in October 2008, that established a comprehensive credit information sharing system; and RA 9576 of August 2009 that increased the Philippine Deposit Insurance Corp. insurance coverage from P250,000 to P500,000.

Major tax reforms that boosted tax revenues include RA 9334 or the Rationalization of the Excise Tax on Alcohol, Cigarettes and Tobacco Products, enacted in 2004; RA 9335, enacted in 2004 or the Lateral Attrition Law, which established a system of rewards and incentives for customs officials and employees; and RA 9337 or the Reformed Value Added Tax Law, enacted in 2005.

The government has also undertaken some administrative reforms, including the Run After Tax Evaders (RATE), Run After the Smugglers (RATS), and the Revenue Integrity Protection Service (RIPS).

Streamlining

The Department of Budget and Management for its part urged Aquino to continue the rationalization program for the bureacracy that has improved efficiency in operations and has generated savings of P2.32 billion since its implementation in 2007.

Budget Assistant Secretary Amelita Castillo said as of June 23, a total of 11,256 positions, of which 5,930 were funded posts, have been abolished since the streamlining of the bureaucracy began three years ago.

“There’s no specific policy yet if the new administration would still pursue the rationalization program. But we are hopeful that the new administration would continue implementing the rationalization program in view of the benefits that it is expected to attain,” Castillo told a news briefing at the Palace.

“It is not just about removing positions, it’s about improving the efficiency of government services because the rationalization program tries to focus the operations of agencies to their core mandates,” she said.

“So, in the process, we attain efficiencies and effectiveness in their operations. So let us remember that it’s not about removing positions, it’s about improving government efficiencies,” she maintained.

She said the abolished positions came from 76 agencies, including departments and government-owned and -controlled corporations.

The government has so far paid P1.2 billion in benefits and separation pay to the employees who have been retrenched but the loss has immediately been recovered with the savings from a streamlined bureaucracy, she said.

President Arroyo has earmarked a P10-billion separation package for government workers who will opt for the early retirement or for voluntary separation under the rationalization program.

Workers who have rendered 20 years of service and below who opt to retire will get half a month of their current salary for every year of service; three-fourth of a month’s salary for those employed from 21-30 years; and one month’s salary for those who have rendered 31 years or more.

For those who have only served for three years, they may avail of the separation gratuity which shall be not less than P50,000.

Under the plan, government agencies are required to submit their own rationalization plans to weed out redundant positions and avoid duplication of functions.

Budget Undersecretary Laura Pascua told the same news briefing that 94 more rationalization plans are still being evaluated by the DBM.