Revenue Mobilization and

Current Tax Issues:

The Case of the Philippines

IMF-Japan High Level Tax Conference

For Asian and Pacific Countries
January 31 - February 2, 2012
Tokyo, Japan

Undersecretary Jeremias N. Paul, Jr.

Department of Finance
Manila, Philippines
 Outline of Presentation

I. Background
II. Issues & Challenges
III. Current Reform Efforts
IV. Concluding Remarks
 Background

BIR and BOC are the main revenue generating

agencies.
Bulk of revenues collected by the Bureau of
Internal Revenue (BIR).
Income Taxes and VAT account for bulk of taxes
and increasing annually. But as a % of GDP,
revenue performance relatively flat. Excise tax
as % of GDP declining due to non-indexation.
Need to improve revenue performance. Tax
effort below historical high of 17% in 1997.
Low tax base constrains revenue growth.
 Background
Two-thirds of total revenues collected by the BIR

Percent Share to Total Revenue

By Collecting Agency
(Average 2000-2010)

Other Offices

BOC BIR
 Background
Income Taxes and VAT account for bulk of taxes ...

Percent Share to Total Tax Revenue

By Tax Category
(Average 2000-2010)
Other Taxes

VAT Income Taxes

10.16%

25.80% 45%

8.59%
10.45%

Import Duties Excise Taxes

 Background
Income Taxes and VAT collections increasing …

In Billion Pesos
Revenue Performance, By Major Type of Tax
500 (2000-2010)

400

300

200

100

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Income Taxes Excise Tax VAT

6
 Background
… but as percent of GDP, revenue performance relatively flat

In % of GDP Revenue Performance, By Major Type of Tax

10 (2000-2010)
9
8
7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Income Taxes Excise Tax VAT

 Background
Need to Improve Revenue Performance

Revenue Performance (% of GDP)

19.4
20
16.5
15.7 15.6 15.6
17.0 14.7 14.4 14.6 14.1 14.4 14.2
15 13.8 13.8 14.0 13.4 13.8
14.1
13.3 13.7 13.5 13.6 13.1
12.8 12.7 12.4 12.2 12.3
12.1 12.1 11.8 12.1
10

5 3.0
2.4 1.9 2.0 2.0 2.0 1.9 2.0
1.6 1.4 1.6 1.7 1.8 1.3 1.5 1.1

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Prelim Program

Revenue Tax Revenue Non-Tax Revenue

 Background
Low Tax Base Constrains Revenue Growth

Laws with revenue eroding provisions

Redundant fiscal incentives granted to
investors
Some growth sectors are not taxable or enjoy
tax incentives:
¾ Exports from the Demand side (44% of GDP –
average share from 1998-2010)
¾ BPO sector – with Income Tax holidays
¾ Agriculture, Fishery and Forestry from the
Supply side (13% of GDP-average share from
 Issues and Challenges

Addressing structural weaknesses in tax

system
Excise taxes as percent of GDP declining due
to non-indexation.
Plug leakages (tax evasion, smuggling)
Reduce distortions (less of redundant
incentives or unproductive government
subsidies).
Exacerbated by the series of revenue eroding
measures passed in 14th Congress.
Anticipated decline in BOC revenues due to
 Issues and Challenges

Providing fiscal support while ensuring fiscal

sustainability …
Imperative of building a stronger and more
robust economy

Enhance international competitiveness and

attract investments

Step up infrastructure development and

social spending to achieve inclusive growth
 Issues and Challenges

Close monitoring of continuing threats to

growth
Monitor developments that may affect
growth prospects

– Global developments
– Climate change and disaster mitigation
– Volatile commodity price movements
 Issues and Challenges

Other issues identified by WB and IMF

Reviewing CIT and PIT to align with
international practice.
Mining/petroleum taxation regime
Excise taxation of telecommunications
services
Reforming real property taxation
Transfer pricing issues
 Current Reform Efforts

Achieve medium term fiscal program.

Intensify implementation of tax and other
administrative measures.
Push for passage of laws rationalizing
fiscal incentives as well as simplifying
taxation on alcohol and tobacco.
Increase non-tax revenues.
 Current Reform Efforts
Achieve medium term fiscal program
GDP

EXPENDITURES
REVENUE
Tax Effort

DEFICIT
 Current Reform Efforts
Intensify Tax Administration Measures

Step-up the fear factor ( i.e. move from

filing of cases to prosecution and
conviction)

¾ Run After Tax Evaders (RATE)

¾ Run After The Smugglers (RATS)

¾ Lifestyle check under the Revenue

 Current Reform Efforts
Intensify Tax Administration Measures

Enhance collection efficiencies

Lateral Attrition Law

Expanded third party information

Anti-smuggling campaign

Improved taxpayer service

 Current Reform Efforts
Intensify other Administrative Reforms

Continue privatization program.

Intensify collection of non-tax revenues

including dividends from GOCCs and GFIs.

Tighten implementing rules and regulations

of enacted revenue eroding measures to
avoid leakages and curb abuse.
 Current Reform Efforts
Push for passage of revenue enhancing laws

Sin Tax Restructuring

Seeks to simplify and restructure the
excise tax system on alcohol and tobacco
products to address inherent weakness in
the current tax structure.
to improve the buoyancy of tax
revenues;
to finance the President’s Universal
Health Care Program.
 Current Reform Efforts
Push for passage of revenue enhancing laws

Rationalization of Fiscal Incentives

Intended to remove redundant incentives to
reduce the fiscal costs and ensure that
incentives will be given only to those who
need them.

Others
Customs Modernization Law
Tax regime for the mining industry
Addressing tax issues identified by WB/IMF
 Concluding Remarks
¾ Increasing revenue mobilization is critical
to achieving inclusive growth.
¾ Administrative reforms are important and
given priority in boosting revenues. Issues
that will make the tax system simple, more
effective and fair will also be addressed.
¾ Revenue and expenditures policy reforms
go hand in hand. To be credible to the
markets, the Philippines must remain
steadfast in the achievement of its medium
THANK
YOU!