IMF: Tax reforms must continue

Reforms in tax administration and change in tax policies must continue for the Philippines to realize higher revenue growth, the International Monetary Fund said over the weekend.

“We do think that tax administration is very low in the Philippines. We have to increase the tax-to-GDP ratio… but to do that we have to broaden the base and change the policies,” IMF resident representative to the Philippines Shanaka Peiris told reporters over the weekend.

He said tax administration, especially what the Bureau of Internal Revenue has been doing, was going in the right direction.

“Customs’ trade facilitation efforts are also positive. Customs, which has been a poor performer in the past, seems in the last few months started to turn a corner but it is too early to say… We hope the reforms will result in more revenues,” he said.

Peiris cited tax incentives rationalization as important because it would bring many companies into the “net.” “Because right now, there are companies that don’t pay at all and that puts the burden on the people,” he said.

However, Peiris discounted the possibility of implementing a lower income taxation because of the poor tax-to-GDP ratio in the country.

“That is possible but as I say, the tax-to-GDP ratio is very low. So you can’t reduce the rates or increase the thresholds without the compensation. We are already in a low tax rates. So if you can broaden the base, then there is potential scope for addressing the issue,” he said.

Peiris said raising sales tax could also be another option to increase revenue but it would be a regressive mode of taxation which affects the poor.

“… We must look at first what is the issue in VAT [value-added tax]. It is not the rate that is low in the Philippines but the VAT compliance is also quite low. Tax efficiency or productivity of VAT is quite low,” he said.

Peiris said that could be addressed by improving tax administration and compliance. He said loopholes in VAT should be examined first before the government thought about raising it.

“Maybe we focus on improving the efficiency of VAT, which also means broadening the VAT base. There are exemptions in VAT and we could think about narrowing the exemptions,” he said.

He said some of these exemptions included cooperatives and the older-age population. On the latter, he said the question was “are the poor pensioners the ones really benefiting or not?”

“So you have to look at the details and see whether you can target the exemptions better,” Peiris said.

The Finance Department earlier said it was aiming to increase the tax-to-GDP ratio from 13.6 percent in 2013 to around 16 percent to 18 percent by 2016 by broadening the tax base.

via IMF: Tax reforms must continue – Manila Standard Today.

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