The government may be able to boost revenue collection without increasing tax rates, through better tax administration and by streamlining exemptions, according to the World Bank.
In a press briefing yesterday, Gonzalo Varela, World Bank lead economist and program leader of the equitable growth, finance and institutions practice group for Brunei, Malaysia, the Philippines and Thailand, said there are reforms that can be implemented on tax administration that will help accelerate the process of fiscal consolidation and in reaching the government’s targets.
“On fiscal consolidation, there is a lot of space actually to reduce the fiscal deficit, to accelerate the process of fiscal consolidation, so that the target of reaching the three percent deficit by 2028 actually is achieved,” Varela told reporters at the World Bank office in Bonifacio Global City.
“Tax rates in the Philippines are relatively high when you compare internationally, when you compare particularly with countries in the region. But the collection of taxes or the efficiency with which taxes are collected is a little bit lower than what we see in other countries in the region,” he added.
Varela noted ways to increase revenue collection without raising the tax rates.
“There is a lot of space I would say through better tax administration and… through a broadening of the tax net,” Varela said.
“One of the things that we see in the case of the Philippines is that, for example, take VAT (value-added tax). There are many exemptions that apply to VAT… that introduce distortions in the system, so that allocate resources in a way that is not necessarily optimal, but also that reduce the capacity of the collector to collect taxes given the tax rates, right? So the more exemptions you have, then the less you’re going to collect,” Varela said.
“So analyzing very carefully what is the rationale for those exemptions, what is the distributional impact of those exemptions? Are these exemptions benefiting who? The poor? The richer households? And then making decisions on streamlining these exemptions, reducing these exemptions, can be a way of increasing tax collection without having to increase tax rates,” he added.
Last month, Finance Secretary Ralph Recto indicated that it is possible for the administration to refrain from implementing any new taxes until the end of its term, as he would first like to focus on improving collection efficiency.
“I think we should try first to collect what’s there. There are still a lot of leakages. I think it is incumbent upon this administration, any increase in tax is a last resort,” Recto said.
“Personally, I think the taxes are already high. What can you tax? 60 percent of our revenue already is indirect tax. And it’s the most efficient way to collect, indirect tax,” he added.
