Carlos G. Dominguez
Secretary of Finance
September 23, 2020
Senator Sonny Angara, Chairperson of the Committee on Finance; Members of the Senate; fellow workers in government: good morning.
Thank you for this opportunity to brief the Senate on the proposed 2021 budget for the Department of Finance.
The DOF performs multiple roles essential to efficient governance and the sustained, inclusive growth of our economy. Our main job is to ensure that the government is adequately funded so that it can perform its functions effectively. We make sure that the priority programs and investments of the President are matched with robust and sustainable funding streams.
Over the past four years, the DOF has pushed for the modernization of our tax policies. We negotiated international funding for our Build, Build, Build infrastructure program. We mustered public support for building national resilience.
2019 was a year of exceptional achievement for the DOF. Through bold reforms in tax policy and administration, we were able to bring up our revenue effort to 16.1 percent of GDP last year from 15.1 percent in 2015. This is our best performance in more than two decades.
In the same year, dividend collections from government-owned and -controlled corporations reached a record-high figure of 69.2 billion pesos. This is 35 percent higher than the 2018 level, and more than double the 2015 level. For the first eight months of this year alone, dividend contributions already reached an unprecedented amount of 128 billion pesos. This is more than a three-fold increase from the dividend remittances collected in 2015. The spectacular trend stems from the DOF and the Government Corporate Sector’s commitment to contribute to the COVID-19 pandemic relief effort.
To further improve our revenue collection efficiency, the DOF pursued more game-changing reforms in our tax policy and administration.
We thank the Senate for passing two successive laws increasing excise taxes on tobacco, alcohol, and e-cigarettes to fund our Universal Health Care program. We are the only administration in Philippine history to have increased sin taxes three times in the last four years.
In addition, the Senate passed into law the amnesty on estate taxes and delinquencies. Errant taxpayers now have the opportunity to feasibly settle their outstanding tax liabilities and unlock the value of their properties.
2019 marked more aggressive tax enforcement campaigns.
We led a sustained drive to crack down on POGOs and their service providers that evade proper taxation. We managed to collect a total of 6.42 billion pesos in taxes from these errant POGOs in 2019—a 169 percent increase from the preceding year.
Our revenue generating agencies continue to put on the fast lane the digital transformation of their offices to make tax compliance more convenient and accessible to all.
Under the Duterte administration, the Bureau of Internal Revenue introduced additional electronic channels for the filing and payment of taxes. In 2019, total revenues collected through digital channels reached 1.83 trillion pesos, representing 84 percent of the total BIR collections last year. This amount is 11 percent higher than the 2018 level and 54 percent more than in 2015. By 2019, there were already more electronic filers at 58 percent of all taxpayers versus 25 percent in 2015. This is targeted to increase in the coming years as the BIR fully digitizes its operations.
The Bureau of Customs, for its part, continued to improve its delivery of services by streamlining its operations and modernizing its infrastructure.
We are the only administration to implement a full-fledged fuel marking program nationwide to curb oil smuggling. As of September 17 of this year, a total of 12.7 billion liters of fuel have been marked, generating 132.6 billion pesos in taxes and duties.
These reforms, along with our prudent fiscal management policies, sustained the strong performance of the economy in 2019.
Last year, we managed to bring down our debt-to-GDP ratio to a historic low of 39.6 percent from 42.7 percent in 2015. The Philippines also has the lowest external debt position among the ASEAN-5 countries. In 2019, we posted a 20.2 percent external debt-to-Gross National Income ratio of 22.7 percent in 2015.
With the prudent management of our fiscal affairs, the Philippines earned the highest investment-grade credit rating ever at BBB plus.
The tight spreads of our offshore bond issuances also underlined investor confidence in the way the Duterte administration has soundly managed the country’s fiscal program. In 2019, we secured even more concessional financing agreements with our development partners to support several big-ticket infrastructure projects.
Our strong fiscal position gave us the headroom to deal with the COVID-19 pandemic.
The DOF has led the economic team in its response to the socioeconomic impact of the global health crisis. We quickly put together a four-pillar socioeconomic strategy with a combined value of at least 2.06 trillion pesos, or 11 percent of our GDP.
Together with the Social Security System and the BIR, we rolled out a 46-billion peso Small Business Wage Subsidy Program for over 3 million workers affected by the lockdown. The program was successfully implemented through the digitalization of the entire process–from application to distribution of wage subsidies.
The DOF has also collaborated with Congress in crafting fiscally responsible economic stimulus packages. The Bayanihan 1 and 2 were designed with a fiscal prudence to ensure that we do not run short of resources in what could be a long battle against the pandemic. Our efforts are guided by nationwide surveys of businesses and individuals, and active stakeholder engagement.
More importantly, the DOF has ensured that we have sufficient funds to fight the pandemic and meet the challenge of recovery.
With our historically high credit ratings, we quickly accessed emergency financing from our development partners and the commercial markets at very low rates, tight spreads, and longer repayment periods. To date, the DOF has secured financing support of 9.9 billion US dollars.
These borrowings will help cover our revenue shortfall resulting from the slowdown of economic activity due to the lockdowns. In the first eight months of this year, our total revenue collection reached 1.9 trillion pesos. This is 8 percent lower than the same period last year. Eighty six percent of the revenues came from tax collections, which registered a negative growth of 12 percent. We are optimistic that tax collections will improve in the coming months as we gradually reopen the economy.
We will continue to work with Congress on our economic priority bills to help us bounce back quickly from this crisis in a sustainable and resilient manner. President Duterte has made it clear that he needs the timely passage of CREATE, FIST, and GUIDE as part of the government’s economic recovery plan.
The swift passage of the 2021 national budget is also crucial. It will provide us with the tools necessary to rebuild our economy and decisively defeat COVID-19.
Before I present our proposed budget, let me first brief you on the spending performance of the DOF.
In 2019, the DOF’s approved budget under the general appropriations amounted to 18.89 billion pesos. The department-wide obligations amounted to 15.37 billion pesos or 92 percent of the total allotments of 16.71 billion pesos. Disbursements, meanwhile, amounted to 13.84 billion pesos or 90 percent of the total obligations for the year.
For this year, our approved budget is 18.55 billion pesos under the general appropriations. The additional appropriations of 35 billion pesos is a net effect of the Bayanihan Grant to local government units and the DOF’s compliance with the Department of Budget and Management’s belt-tightening measures under Circular Number 580. The circular aims to provide readily available funds for the government’s COVID-19 response efforts. As of end June of this year, the department-wide obligations amounted to 43.52 billion pesos or 84 percent of the total allotments of 51.54 billion pesos. Disbursements, meanwhile, amounted to 41.86 billion pesos or 96 percent of the total obligations for the year.
Let me now brief you on the DOF’s proposed 2021 budget.
The department’s proposed budget for next year totals 18.28 billion pesos. This includes Automatic, Unprogrammed, and New General Appropriations as well as Budgetary Support to the GOCCs.
The Automatic Appropriations amounts to 1.46 billion pesos. These are composed of the Retirement and Life Insurance Premium, and Special Accounts in the General Fund.
The Unprogrammed Appropriations amounting to 210 million pesos is for the refund of the service development fee for the government’s Nampedai property in Japan.
A total of 595 million pesos is allocated for the budgetary support to GOCCs. This includes an equity infusion to the Philippine Guarantee Corporation amounting to 500 million pesos. The remaining 95 million pesos is for the implementation of the Specialized Tax Training and Education Management Program of the Philippine Tax Academy.
Under the Duterte administration, the DOF budget has steadily decreased while the department continued to collect unprecedented amounts of revenues and effectively fulfill its mandate in prudently managing state finances.
The proposed 2021 DOF budget under the New General Appropriations amounts to 16.01 billion pesos. This is 13.7 percent or 2.54 billion pesos lower than the 2020 approved budget. This is much lower by 15 percent than the 2019 level, 17 percent versus the 2018 level, and 25 percent compared to the 2017 approved budget.
The agencies with the biggest budget decrease for next year are the Bureau of the Treasury and the Insurance Commission. The BIR, meanwhile, will have the biggest budget increase and it continues to have the largest budget allocation among DOF-attached agencies.
I will now proceed to a more detailed presentation per agency.
We have allocated 9.93 billion pesos for the BIR next year to further improve its tax administration and enforcement capabilities, and digital infrastructure. The proposed budget is 16.6 percent more than the 2020 level. The 18 percent rise in personnel services is due to an increase in filled-up positions from 11,529 in 2020 to 12,449 in 2021. Meanwhile, the 23 percent growth in MOOE, or maintenance and other operating expenses, is credited to the sustainability of BIR’s information and communications technology programs.
The Bureau of Customs will have the second highest increase in the proposed budget with an allocation of 2.58 billion pesos. This is 5 percent higher than the 2020 approved budget. The 4 percent growth in personnel services is due to additional filled-up positions from 2,733 in 2020 to 2,892 in 2021. The 29 percent increase in MOOE reflects the 187.6 million peso-requirement for office productivity as recommended by the Medium-Term Information and Communications Technology Harmonization Initiative.
The Bureau of the Treasury, meanwhile, has an allocation of 2.16 billion pesos. This is 55 percent lower than the 2020 budget. The proposed budget reflects a 3 percent decrease in personnel services due to the retirement of some employees. Thus, the number of filled-up positions was reduced from 676 in 2020 to 638 in 2021. The 78 percent drop in MOOE is due to the non-provision of government assets insurance amounting to 1.9 billion pesos. The said allocation was already provided for in the 2020 budget. Meanwhile, the 61 percent drop in capital outlays is mainly due to the reduced requirement for International Commitment Fund investment.
The proposed budget for the Office of the Secretary is 832.64 million pesos. This is one half of one percent lower than the 2020 budget. The 8 percent increase in personnel services reflects a growth in filled-up positions from 484 in 2020 to 488 in 2021. There is also a provision for retirement benefits for 4 mandatory retirees in the department.
The 7 percent decrease in MOOE is mainly due to the reduction in the recommended operational requirements of the department. The 31 percent drop in capital outlays is all accounted to the decrease in the budget of the Medium-Term Information and Communications Technology Harmonization Initiative projects.
The remaining five attached agencies have a total proposed budget of 507.13 million pesos or 3.2 percent of the total DOF budget.
The DOF strives to be the exemplar of prudence and fiscal discipline. Our fiscal objectives closely mirror the administration’s priority programs, especially the infrastructure modernization and other public investments intended to improve the lives of our people.
We look forward to your approval of this budget submission.
We are also committed to working closely with you on the government’s recovery measures so that these can be enacted in a timely, decisive, and responsible manner.
Thank you.
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