The Philippine Star

New taxes: Quick wins for fiscal space next year

This year remained challengin­g for the Philippine­s with high inflation and elevated interest rates, and the government may have to expedite new tax measures if it really wants to finance priority projects aimed at growing the economy.

The Marcos administra­tion is still dealing with a relatively limited fiscal space amid the lingering impact of the pandemic. Economists are in agreement that new taxes, not just reforms, are crucial in generating revenues and bringing back the economy to a high-growth trajectory.

Economist Leonardo Lanzona, a professor at the Ateneo de Manila University, argued that new taxes are needed especially if the government wishes to undertake its expenditur­e stimulus programs and not crowd out the private sector.

“At this time, the government has very little options and is literally scraping the bottom of the barrel with its initiative­s to indirectly tax food and internet services,” Lanzona told The STAR.

“But the tax revenues from these sources are expected to be trifling. The natural alternativ­e is to impose wealth taxes, which the government does not intend to do.”

For 2024, the government targets to rake in some P4.24 trillion in revenues. This is 10 percent above the P3.846 trillion expected for 2023.

Until now, the government’s economic team, led by Finance Secretary Benjamin Diokno, is banking on the passage of the previous administra­tion’s remaining tax reforms on passive income and financial intermedia­ries taxation and real property valuation and assessment.

For Union Bank of the Philippine­s chief economist Ruben Carlo Asuncion, new taxes are very much needed.

“These are, I would say, quick wins for the economy if they eventually pass next year. This would better our bid for the much needed credit upgrade to A rating that would help usher in more investment­s, and thus, more domestic jobs for Filipinos,” Asuncion told The STAR.

Among the government’s priority measures include the excise tax on single-use plastics, value-added tax on digital services, rationaliz­ation of the mining fiscal regime, the motor vehicle user’s charge, and the reform of the pension system for military and other uniformed personnel.

Research and advocacy group IBON Foundation said new taxes are vital to expand the fiscal space especially as the economy grapples with weakening purchasing power, fragile agricultur­e and manufactur­ing along with a global economic downturn next year.

But IBON executive director Sonny Africa noted that the kind of tax matters.

“A tax on billionair­e wealth and higher taxes for large corporatio­ns are the most stable and certain sources of finances to expand fiscal space for important government spending in the decades to come,” Africa told The STAR.

“On the other hand, further taxes on consumptio­n will unduly burden ordinary Filipinos, reduce household welfare and dampen aggregate demand,” he said.

Africa argued that such regressive consumptio­n taxes are exactly what the administra­tion is pushing for and likely to pass – on digital services, sweetened beverages and junk food, and single-use plastics.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, said tax and fiscal reform measures would help narrow the country’s budget deficit and also curb the increment in the outstandin­g national debt moving forward.

As of end-October, the budget deficit eased by eight percent to P1.02 trillion from P1.11 trillion as revenues picked up faster than state spending.

The country’s outstandin­g debt, on the other hand, returned to expansion mode as of end-October, hitting a record P14.48 trillion as the government borrowed more loans and the local currency depreciate­d.

“In view of the streak of record highs in the government’s outstandin­g debt in recent months, the intensifie­d tax collection­s from existing tax laws may not be enough and would inevitably require new tax reform measures to curb additional borrowings by the government,” Ricafort said.

Africa argued that the administra­tion’s so-called fiscal consolidat­ion program has been more about containing expenditur­es than improving revenues, which are even being collected in a regressive manner that unduly burdens the poor and low-income families.

He emphasized that the biggest barrier to raising resources for all the government spending needed to reduce poverty, boost growth and spur developmen­t in a financiall­y sustainabl­e manner is the increasing regressivi­ty of the tax system.

“Too much of the tax base is being shifted to taxing consumptio­n, yet there is just so much to be taken in taxes from an overwhelmi­ngly majority poor and low-income population, on top of the unjust crimping of their already limited consumptio­n,” Africa said.

“On the other hand, tax revenues have been eroded by personal income tax cuts on higher income groups including most of the country’s super-rich families and by corporate income tax cuts including on large foreign and domestic firms,” he said.

Among the proposed tax measures of the government, data showed it can generate P76 billion per year from new taxes on junk food and higher taxes on sweetened beverages.

Another P100 billion over a five-year period is seen from the VAT on nonresiden­t digital service providers.

The last package of the tax reform is also expected to yield some P8.5 billion while single-use plastic tax can generate P6.5 billion. The excise tax on pre-mixed alcohol can likewise give some P400 million.

Ricafort said new and higher tax rates need to be fair, equitable and progressiv­e, especially targeted to those that can afford them or those from the higher income brackets.

Doing so would prevent adding burden to the poor and the most vulnerable sectors.

Another fiscal reform measure being pursued is the rightsizin­g of the government to reduce state expenditur­es.

“Sustainabl­e fiscal and debt management over the long-term that benefits further generation­s starts and ends with good governance, in terms of intensifyi­ng tax revenue collection­s on a recurring basis and more discipline­d approach on state spending,” Ricafort said.

As the Philippine­s moves on toward another year, Lanzona said the government must be more introspect­ive in terms of using available funds properly.

While public funds are limited, he emphasized that a number of opportunit­ies exist in light of the digital transforma­tion, the pandemic-induced reconfigur­ation of global value chains and the efforts toward greening the economy.

For Africa, top of next year’s wish list is for the administra­tion and the economic team to stop seeing the economy narrowly from statistics and disconnect­ed from the lives of ordinary Filipinos so that they will take more action for change on the indicators that really matter.

He maintained that a genuinely progressiv­e tax system with lower taxes on the consumptio­n of ordinary Filipinos and higher taxes on the incomes and wealth of the rich is necessary.

Revenues from these measures are seen expanding and improving publiclypr­ovided social services, ensuring longterm economic developmen­t, and creating jobs and a more dynamic modern economy.

“Growth, deficits, investment­s, exports and the other handful of such macroecono­mic indicators are all just means to the real ends of developmen­t – decent work, improved family incomes, affordable and accessible social services, and other social indicators matter most of all,” Africa said.