Philippines Discussion Notes
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I. STABLE MACRO ECONOMYPHILIPPINES Discussion Note No. 3 Tax Policy and Administration The urgent need to reverse the erosion of tax revenues “A limited revenue base has constrained the ability of the government to undertake socially necessary spending, especially on infrastructure. And tax collection is an area in which the Philippines conspicuously underperforms its neighbors” Krugman, Paul et al., 1992, “Transforming the Philippine Economy”. The Philippines urgently needs to raise more public revenues in order to avoid having to cut back essential public services or having to face a higher risk of fiscal crisis. Reforms of the excise tax and VAT systems offer “quick win” solutions in that they could be introduced fairly rapidly and would increase revenues immediately and equitably. Beyond that, it is also advisable to adopt more fundamental reforms to address existing shortcomings in the tax structure and in tax administration. These reforms need to be guided by both efficiency and equity considerations that call for broader tax bases and lower tax rates than characterize the current tax regime in the Philippines. In particular, structural reforms of the tax system must pay close attention to income taxes, both personal and corporate ones. The reforms proposed would improve the progressivity of the tax system, especially if the additional revenues generated allow for higher pro-poor spending.
Table . Philippines: Revenue Trends by Tax Type; 1997-2009 1997 1998
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009 Proj.
Revenues and Grants 19.4
17.4 16.1
15.3 15.6
14.6 14.8
14.5 15.0
16.2 17.1
16.2 15.0
Tax Revenues 17.0
15.6 14.5
13.7 13.6
12.8 12.7
12.4 13.0
14.3 14.0
14.1 12.8
Bureau of Internal Revenue 13.0
12.7 11.5
10.8 10.7
10.2 9.9
9.7 10.0
10.8 10.7
10.5 9.5
Income Taxes 6.8
6.9 6.2
6.0 6.2
5.7 5.6
5.7 5.9
6.3 6.4
6.5 5.8
Corporate Income Tax 3.4
2.9 2.6
2.6 2.7
2.5 2.6
2.7 2.8
3.2 3.6
3.8 3.4
Personal Income Tax 2.5
2.4 2.4
2.5 2.2
2.1 2.0
2.0 2.1
2.2 2.1
2.0 2.0
Other 0.9
1.6 1.1
1.0 1.2
1.1 1.0
1.0 1.0
0.8 0.7
0.6 0.5
Excise Tax 2.6
2.4 2.1
1.8 1.6
1.4 1.3
1.2 1.1
1.0 0.8
0.8 0.8
Alcohol 0.6
0.5 0.4
0.4 0.3
0.3 0.3
0.3 0.3
0.3 0.3
0.3 0.3
Tobacco 0.7
0.6 0.6
0.5 0.5
0.5 0.5
0.5 0.4
0.4 0.3
0.4 0.3
Fuels 1.2
1.2 1.0
0.8 0.7
0.6 0.5
0.4 0.3
0.2 0.2
0.2 0.1
Other 0.2
0.1 0.1
0.1 0.1
0.1 0.0
0.0 0.0
0.0 0.0
0.0 0.0
VAT and other percentage taxes 2.8
2.5 2.6
2.3 2.4
2.3 2.3
2.2 2.2
3.0 2.8
2.4 2.7
VAT 1.9
1.8 1.9
1.6 1.6
1.7 1.9
1.6 1.6
2.3 2.2
1.9 2.1
Other Percentage Taxes 0.8
0.8 0.7
0.7 0.8
0.6 0.4
0.6 0.6
0.6 0.6
0.5 0.6
Others 0.8
0.8 0.6
0.5 0.5
0.7 0.6
0.5 0.7
0.6 0.7
0.7 0.7
Bureau of Customs 3.9
2.9 2.9
2.8 2.8
2.5 2.7
2.6 2.8
3.3 3.2
3.5 3.1
Tariffs 1.9
1.6 1.4
1.4 1.1
0.9 1.0
1.0 1.1
1.0 1.0
1.2 1.1
Import VAT 1.8
1.2 1.2
1.3 1.3
1.2 1.2
1.2 1.3
2.0 1.9
2.1 1.8
Excises 0.1
0.0 0.0
0.1 0.2
0.3 0.3
0.3 0.3
0.2 0.2
0.2 0.2
Other 0.2
0.0 0.2
0.1 0.2
0.1 0.3
0.1 0.2
0.2 0.0
0.0 0.0
Other Offices 0.1
0.1 0.1
0.1 0.1
0.1 0.1
0.2 0.2
0.1 0.1
0.1 0.1
Overal fiscal balance (GFS basis) 0.1
-1.9 -3.8
-4.0 -4.6
-5.6 -4.9
-4.2 -3.0
-1.2 -1.6
-1.5 -3.8
(percent of GDP) Source: Bureau of Treasury, Department of Finance, Bureau of Customs; and World Bank staff projections.
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