Philippine's Tax Collection Improves But Deficit Increases

by Mary Swire, Tax-News.com, Hong Kong

24 October 2002

Philippines' Finance Secretary Jose Camacho said yesterday that collections by the Bureau of Internal Revenue, which account for 70 per cent of the government's total revenue, reached 32.4 billion pesos in September, close to the 32.7 billion target set for the month. But that is the only good news: government expenditure is racing ahead and the country's fiscal deficit has already reached the target set for the whole year, although it was revised as recently as August.

For the nine-month period, total expenditure reached 577.36 billion pesos against the target of 565.45 billion, and the deficit is 166.47 billion pesos (about US$3 billion), 4% to 4.1% of gross domestic product (GDP), exceeding a full-year target that had been upwardly revised only last month. Mr Camacho said the latest indications were that the full-year deficit could slip to 4.4% to 4.5% of GDP.

Mr Camacho said the increase in the deficit was largely due to higher interest payments on the government's local and foreign debt.

Philippines President Gloria Macapagal Arroyo admitted in her State of the Nation Address in August that tax collections were running far behind target, and said she would take strong administrative measures to improve the situation, focussing particularly on widespread tax evasion and corruption among tax inspectors. But shortly afterwards, Chief Tax Collector Rene Banez resigned after failing to reform the Bureau into an Internal Revenue Management Authority, which would link pay and tenure of senior officers to performance.

Mr Banez, who wanted to be able to fire corrupt and incompetent tax collectors, accused opponents of reform of stirring up trouble among the agency's employees and undermining tax collection to thwart changes at the agency. "I strongly believe that a few perpetrators are out to sabotage the reforms by deliberately cutting back on collections during the first half of the year," he said.

Total tax collections this year seem likely to reach only 13% of GDP, while Malaysia for example takes in 20% and Japan collects over 30%. Investors have been worried about the fiscal picture since July, when the government admitted that its first half budget deficit reached 119.7bn pesos ($2.3bn), just a few billion pesos short of the original 130bn peso full-year target.

Recommended