Undersecretary Jeremias N. Paul, Jr.Department of Finance

Manila, Philippines

Revenue Mobilization and Current Tax Issues:

The Case of the Philippines

IMF-Japan High Level Tax ConferenceFor Asian and Pacific CountriesJanuary 31 - February 2, 2012

Tokyo, Japan

Outline of Presentation

I. Background II. Issues & Challenges

III. Current Reform Efforts

IV. Concluding Remarks

BIR and BOC are the main revenue generatingagencies.Bulk of revenues collected by the Bureau ofInternal Revenue (BIR).Income Taxes and VAT account for bulk of taxesand increasing annually. But as a % of GDP,revenue performance relatively flat. Excise taxas % of GDP declining due to non-indexation.Need to improve revenue performance. Taxeffort below historical high of 17% in 1997.Low tax base constrains revenue growth.

Background

Percent Share to Total RevenueBy Collecting Agency

(Average 2000-2010)

Background

Other Offices

BOC BIR

Two-thirds of total revenues collected by the BIR

45%

10.45%8.59%

25.80%

10.16%

Excise Taxes

Percent Share to Total Tax RevenueBy Tax Category

(Average 2000-2010)

Income Taxes

Import Duties

VAT

Other Taxes

BackgroundIncome Taxes and VAT account for bulk of taxes ...

6

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Income Taxes Excise Tax VAT

In Billion Pesos

BackgroundIncome Taxes and VAT collections increasing …

Revenue Performance, By Major Type of Tax(2000-2010)

0123456789

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Income Taxes Excise Tax VAT

In % of GDP

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

Revenue Performance, By Major Type of Tax(2000-2010)

Revenue Performance (% of GDP)19.4

15.714.7 14.4 14.6 13.8 14.1 13.8 14.4

15.6 16.5 15.614.0 13.4 13.8 14.217.0

14.113.3 12.8 12.7 12.1 12.1 11.8 12.4

13.7 13.5 13.612.2 12.1 12.3

13.1

2.41.6 1.4 1.6 1.9 1.7 2.0 2.0 2.0 1.9

3.02.0 1.8 1.3 1.5 1.1

0

5

10

15

20

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

Revenue Tax Revenue Non-Tax RevenuePrelim Program

Need to Improve Revenue PerformanceBackground

Laws with revenue eroding provisionsRedundant fiscal incentives granted toinvestorsSome growth sectors are not taxable or enjoytax incentives:

Exports from the Demand side (44% of GDP –average share from 1998-2010)BPO sector – with Income Tax holidaysAgriculture, Fishery and Forestry from theSupply side (13% of GDP-average share from1998 2010)

BackgroundLow Tax Base Constrains Revenue Growth

Addressing structural weaknesses in taxsystem

Excise taxes as percent of GDP declining dueto non-indexation.Plug leakages (tax evasion, smuggling)Reduce distortions (less of redundantincentives or unproductive governmentsubsidies).Exacerbated by the series of revenue erodingmeasures passed in 14th Congress.Anticipated decline in BOC revenues due to

Issues and Challenges

Providing fiscal support while ensuring fiscalsustainability …

Imperative of building a stronger and morerobust economy

Enhance international competitiveness andattract investments

Step up infrastructure development andsocial spending to achieve inclusive growth

Issues and Challenges

Issues and Challenges

Close monitoring of continuing threats togrowth

Monitor developments that may affectgrowth 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 withinternational practice.Mining/petroleum taxation regimeExcise taxation of telecommunicationsservicesReforming real property taxationTransfer pricing issues

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

Current Reform Efforts

EXPENDITURES

DEFICIT

REVENUETax Effort

GDP

Achieve medium term fiscal program

Step-up the fear factor ( i.e. move from filing of cases to prosecution and conviction)

Run After Tax Evaders (RATE)

Run After The Smugglers (RATS)

Lifestyle check under the Revenue I t it P t ti S i (RIPS)

Intensify Tax Administration MeasuresCurrent Reform Efforts

Enhance collection efficiencies

Lateral Attrition Law

Expanded third party information

Anti-smuggling campaign

Improved taxpayer service

Current Reform EffortsIntensify Tax Administration Measures

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.

Intensify other Administrative ReformsCurrent Reform Efforts

Sin Tax RestructuringSeeks 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 EffortsPush for passage of revenue enhancing laws

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

OthersCustoms Modernization LawTax regime for the mining industryAddressing tax issues identified by WB/IMF

Current Reform EffortsPush for passage of revenue enhancing laws

Concluding Remarks

Increasing revenue mobilization is critical to achieving inclusive growth.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. 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 term fiscal program

THANK YOU!