Tax relief damaging–WB (Break signaled giving up on fiscal targets)
Darwin G. Amojelar
Manila Times
A tax exemption granted recently by the government to minimum-wage earners could damage the Philippines’ macroeconomic gains, the World Bank warned.
“I truly believe that the macroeconomic effect of [the tax relief] will be more damaging because what would happen is that the Philippines will signal that it would give up a little bit some fiscal consolidation,” Bert Hofman, World Bank country director for the Philippines, told reporters on Monday.
A “consequence [of the tax exemption is that] interest rate may go up, the peso will become weaker and it [weakening] will result [in] higher inflation,” Hofman added.
By January 1, 2009, the Bureau of Internal Revenue will no longer withhold tax from employees earning from P285 to P325 per day in Metro Manila, the National Capital Region.
The Finance department was also looking at extending the tax exemption to individual and fixed-income earners, particularly the low-income to middle-income taxpayers.
The income-tax break aimed to cushion the impact on workers of the value-added tax on oil and of higher inflation. For 2008, the government expects to raise from the oil tax at least P4 billion and for 2009, P82 billion.
Benjamin Diokno, a former Budget secretary and now economics professor at the University of the Philippines, agreed with Hofman, saying the recent law raising personal tax exemption and exemption of minimum-wage earners from income taxation are a big revenue loss.
“Despite the declining size of the budget deficit, the fiscal situation at present is not sustainable,” Diokno pointed out. “It [fiscal situation] is built on shaky ground,” he said.
Given the current situation, according to the former Budget chief, it is unlikely that the government will balance the budget by 2010. He said the government is likely to incur a deficit of 1 percent of gross domestic product (GDP) next year. GDP is the total value of goods and services produced in a country in a year.
For 2009, the government is expecting a budget deficit of 1 percent of GDP or P75 billion as it aims to shield the economy from effects of galloping food and oil prices.
For 2007, the government posted a deficit of P12.4 billion.
Hofman urged the government to raise revenue collection that, he said, would lead to increased public-sector spending.
“I think the Philippines’ spending level should be 17 percent to 18 percent of GDP. Right now, it’s 14 percent,” he added.
“It [17 percent to 18 percent] is what other Asian middle-income countries spend and is about what would be needed to meet objectives of the government on health, education, infrastructure, social protection, etc.,” Hofman said.
The Development Budget Coordinating Committee is expecting a revenue-to-GDP ratio of around 15.69 percent to 15.8 percent for 2008. For 2009, the range would be between 15.34 percent and 15.79 percent and for 2010, between 15.23 percent and 15.94 percent.
The Finance department said revenue collection for 2008 was set at P1.123 trillion and P1.279 trillion for 2009.
The government expects the Internal Revenue bureau to collect P845 billion for 2008 and P968.5 billion for 2009. It also expects the Bureau of Customs to take in P269 billion for this year and P300 billion for next year.
No Comments, Comment or Ping
Reply to “Tax relief damaging–WB (Break signaled giving up on fiscal targets)”