THE government is unlikely to introduce any new taxes while the economy is recovering from the coronavirus pandemic, Finance Secretary Carlos G. Dominguez III said.
“We are not really seriously considering any taxes [because] taxing our citizens when their incomes are down is not a good idea,” Mr. Dominguez told Bloomberg TV on Wednesday when asked if there are plans to raise taxes before the Duterte administration ends its term in June 2022.
He also clarified the government is not looking to sell its assets to raise revenues.
“As to selling assets, we’re not that desperate. And besides, most of our assets are in real estate and in mining operations and quite frankly, the real estate market is uncertain at this point in time, although it has been holding quite well,” Mr. Dominguez said.
Last month, the Finance chief told the Senate that they are drafting proposals for additional revenue sources for 2021 and 2022 to pay for the debt incurred this year.
However, this was opposed by lawmakers, including Senator Franklin M. Drilon who said he will not support any new tax hikes next year as the country is still expected to recover from the economic crisis.
The Philippine economy contracted by nine percent in the first half and is expected to slump by 4.5-6.6% for the entire year.
Christian de Guzman, senior vice-president of sovereign risk group at Moody’s Investors Service, said the government has a “short window of about a year” to push for tax reform measures before the campaign period for the national elections in 2022 “detracts attention away from the reform.”
“Moreover, as long as the coronavirus outbreak remains unresolved, lawmakers will likely retain an emphasis on facilitating the near-term recovery from the pandemic shock at the expense of more lasting, structural reform,” he said in an e-mail on Tuesday.
The Finance department is waiting for Congress to approve the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill that will lower corporate income tax, as well as rationalize the current tax incentive scheme. Other tax bills pending in Congress are the proposed new tax regime for the mining industry and the measure streamlining the taxes on passive income and financial instruments.
“As the need for fiscal accommodation will likely persist beyond 2020, the ability of the government to raise resources to fund ongoing support to businesses and households will determine the extent to which deficits can be narrowed and the debt trajectory can be stabilized. Having said that, the Philippines was one of few emerging markets globally to demonstrate the ability to materially raise revenue through both administrative and legislative reform prior to the pandemic shock,” Mr. De Guzman said.
The economic team plans to slowly reduce its budget deficit from the projected 9.6% of gross domestic product (GDP) this year down to 8.5% next year and 7.2% in 2022. The trajectory, however, is still far from the 3.4% deficit level seen in 2019 and the 3.2% cap that the government has been targeting prior to the pandemic.
Debt-to-GDP ratio, meanwhile, is expected to rise to 53.9% this year from 39.6% in 2019, and further up to 58.3% in 2021 and 60% in 2022 as the country borrows more to plug the budget shortfall. This year’s gross borrowings hit P2.5 trillion as of end-August.
State revenues have been falling due to sluggish economic activity amid the pandemic. Taxes collected by the Bureaus of Internal Revenue (BIR) and Customs (BoC) were down 12.13% year on year to P1.821 trillion in the eight months to September.
Meanwhile, Mr. Dominguez also said on Wednesday the National Government may still borrow more from the Bangko Sentral ng Pilipinas (BSP) next year to plug some of its short-term funding requirements.
“As I said, we keep that in reserve, our first options are to go back into the commercial market, but, you know, if the economy doesn’t perform as we expect, we will go back to (BSP),” he told Bloomberg TV.
The BSP has lent the National Government a total of P840 billion so far this year to help fund its pandemic response. — B.M.Laforga