The Department of Finance (DOF) has underscored the need to complete the passage of the remaining packages of the Duterte administration’s comprehensive tax reform program (CTRP) to ensure a reliable revenue base that will help support the modernization of the Philippine economy and ensure the equitable sharing of funds for the government’s social and infrastructure programs, while securing fiscal stability long into the future.
Finance Undersecretary and DOF chief economist Gil Beltran said that for 2020, revenue collections are projected to reach P3.5 trillion of which P187.1 billion will come from tax reform.
These include P153.8 billion from the first CTRP package or the Tax Reform for Acceleration and Inclusion (TRAIN) Law; P15.7 billion from Republic Act No. 11346, which raised excise taxes on tobacco products; and an estimated P20 billion to be collected from Package 2 Plus, which aims to increase excise taxes on alcohol and e-cigarette products.
Package 2 Plus was already approved by the House of Representatives on third and final reading on Aug. 20.
Expenditures for 2020 are expected to reach P4.2 trillion or 19.8 percent of GDP, which translates into a deficit target of P677.6 billion or 3.2 percent of GDP that “is well within the norm for deficit spending,” Beltran said at a briefing by the Development Budget Coordination Committee (DBCC) for senators on Thursday morning.
“The executive branch will continue to be engaged with the legislature in passing the remaining tax reform packages that will generate additional revenue streams for government to fund social amelioration programs,” said Beltran who represented Finance Secretary Carlos Dominguez III at the briefing.
Beltran likewise pointed out that the passage and implementation of the remaining tax packages and the rest of the fiscal reform agenda will help bring the country to “A” rating territory “within the next couple of years.”
“More importantly, completing our reform programs will further secure our fiscal stability and help fulfill our shared goal of a decent and comfortable life for all law-abiding Filipinos. This means achieving our ultimate goal of bringing down poverty incidence from 21.6 percent in 2015 to only 14 percent by 2022,” Beltran added.
Beltran said the Philippines’ elevation from lower- to upper-middle income country status ahead of schedule next year is proof that the government can accomplish its goal of beating extreme poverty within a generation, “if we stay on course and continue to invest in the right things.”
“Please be assured that we will continue to improve on our fiscal position in the coming period while introducing reforms that will help our economy gain competitiveness. I am sure Congress shares our vision of building a strong and inclusive economy for the Filipinos today and in the years to come,” he said.
Beltran said that for 2022, revenue and disbursement projections are estimated to rise to P4.4 trillion (17.2 percent of GDP) and P5.2 trillion (20.4 percent of GDP), respectively.
Given the revenue and disbursement program adopted by the DBCC, the deficit target will be maintained at 3.2 percent of GDP from 2019 to 2022 to sustain the government’s investments on infrastructure and human capital development, he added.
Beltran said the public sector deficit is projected to grow marginally to about 1.3 percent of GDP by 2020 owing to the government’s aggressive spending to support the “Build, Build, Build” infrastructure modernization program.
The government’s fiscal performance, debt management and policy reforms presented before senators were earlier reported by Beltran during a separate briefing held by the DBCC last Aug. 22 before the House of Representatives appropriations committee.
Beltran said 2018 was a banner year for the DOF as total revenue collection reached P2.85 trillion, which was 15.2 percent higher than the 2017 level.
Tax collections, which accounted for 90 percent of total revenues, posted a growth rate of 14 percent, with the Bureaus of Internal Revenue (BIR) and of Customs (BOC) achieving double-digit collection growth rates of 10.1 percent and 29.4 percent, respectively, he noted.
Revenues attributable to the TRAIN Law amounted to P68.4 billion through 2018, exceeding the full-year target of P63.3 billion by 8.1 percent.
Beltran said the DOF expects this strong revenue performance to continue as total revenue collections already reached P1.5 trillion in the first six months of 2019, which is 9.7 percent or P127 billion higher than the same period last year. Of the total revenues collected in the first half, P1.4 trillion or 89.2 percent came from tax collections.
“The 2018 tax effort rose to 14.7 percent of GDP. This is the highest rate in two decades and closely matches the regional average. The passage of the TRAIN Law and continuing administrative reforms in our revenue agencies brought about this record performance. The other tax reform packages also have made progress last year. We thank the Senate for their strong support for our proposed reforms,” Beltran said.
He said the DOF also continues to spearhead programs on cutting red tape and improving the ease of doing business by modernizing processes and the tax system. The DOF, together with the BIR and BOC, have been intensifying the campaign against tax evasion and smuggling, he added.
Beltran also cited the record dividend remittances by government-owned and -controlled corporations (GOCCs), which rose to P51.2 billion in 2018 and reflect the “improvements in corporate governance among the GOCCs.”
As of July 2019, dividend contributions of GOCCs reached another record total of P61.3 billion, pushing non-tax revenues higher by 6.9 percent in the first half of this year, he said.
Tax collection registered a growth of 10.1 percent in the first half of 2019. BIR collections rose by 10.6 percent, translating into an additional P101.8 billion in revenues over the same period last year. BOC collections grew by 8.5 percent or a P23.6 billion increase from the same period of last year.
“We are confident this growth will be sustained in the coming period through continuing administrative reforms and the completion of the CTRP that will make our tax system simpler, fairer and more efficient. In both revenue agencies, we are automating processes and strengthening control measures against slippages,” Beltran said.
The country’s debt continue to be managed “according to the best standards of fiscal discipline,” Beltran said, noting that as of end-2018, debt as a percentage of GDP stood at 41.9 percent, down from 42.1 percent in 2017.
With a sustainable fiscal policy and prudent debt management, we expect the debt-to-GDP ratio to continue its downward trajectory, settling at 39 percent by 2022, he said.
As of June 2019, the government’s financing mix was at a 73:27 ratio, favoring domestic borrowings–an improvement over the end-2018 financing mix of 66:34.
Beltran said the government will continue to favor domestic borrowings, following a 75:25 mix in 2020 to 2022.
“As a matter of prudence, government will continue to borrow predominantly in the local currency to meet funding requirements. The reason for this is to minimize our exposure to foreign currency volatility. Borrowing locally also supports the long-term objective of developing our domestic capital markets,” Beltran said.
As a percentage of revenues, interest payments fell from 31.7 percent in 2006 to just 12.3 percent in 2018.
As a percentage of expenditures, interest payments declined from 29.7 percent in 2006 to just 10.2 percent in 2018. As of end-June 2019, interest payments comprised 11.6 percent of revenues and 11.3 percent of expenditures.
With the country effectively outgrowing its debt, the government has more funds now to spend on infrastructure modernization and social services, Beltran said.