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Philippines' New President Not To Raise Taxes

by Mary Swire,, Hong Kong

01 July 2010

To reduce the country’s increasing fiscal deficit, the newly-elected President of the Philippines, Benigno Aquino III, is convinced that the collection of taxes should be improved before there is any thought of their increase.

He has said that, without any action by the government, the fiscal deficit could increase to a record level in 2010, at PHP349bn (USD7.5bn) or 4.2% of the Philippines’ gross domestic product (GDP). The previous Arroyo government had set its target for this year at around 3.5% of GDP.

Representatives of the outgoing government, in particular its Finance Secretary, Margerito Teves, had reiterated many times that, in their opinion, tax revenues would only reach their projected outturn in 2010 if the new government was willing to introduce new tax-raising measures. One of those suggested measures was an increase in the value added tax rate to 15%, from its present rate of 12%.

For some time, there have been calls for enhanced tax administration in the country, including a crackdown on tax evaders and the enforcement of anti-corruption programmes in the tax and customs agencies.

While there will also be a re-examination the government’s infrastructure and development spending commitments, President Aquino has picked up those calls and pledged that he will look first to improving tax collections to close the fiscal deficit.

Therefore, while his government’s commitment will be to reduce the deficit, it will only look at new or increased taxes to achieve that as a final resort. In any case, as the economy is showing signs of a strong recovery, he added that additional external borrowing should also continue to be available to fill the budgetary shortfall, which should be reduced to about 2% of GDP in the next three years.

TAGS: compliance | tax | economics | value added tax (VAT) | tax compliance | fiscal policy | budget | Philippines | enforcement

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