Manila committed to its programmed fiscal gap

(Updated) MANILA, Philippines - The Philippines remains committed to meeting its programmed fiscal gap despite expectations that the deficit may widen this year as companies pay less taxes. The inter-agency Development and Budget Coordinating Committee (DBCC) is keeping its fiscal gap at P177.2 billion, estimated to be 2.2 percent of the country’s gross domestic product (GDP). By insisting on keeping its deficit cap, Finance Secretary Margarito B. Teves has committed revenue generating agencies to collect P1.322 billion given Malacanang's vow to spend P1.4 trillion this year. As a result, senior government officials have predicted a tough year for Teves, who is battling collection shortfalls of agencies directly under his supervision. Last year, the Bureau of Internal Revenue (BIR), the government’s largest revenue source, missed its targets by P62 billion, later adjusted to P32 billion. Similarly, the Bureau of Customs (BOC) posted a P13 billion shortfall. Earlier, the National Economic and Development Authority (NEDA), the country’s socioeconomic planning body, expressed similar sentiments, warning that lower tax collections will hurt government’s finances. This year’s budget may incur a revenue gap of P257 billion, an amount equivalent to three percent of GDP, NEDA chief Ralph G. Recto said. Various economists and analysts agreed with Recto’s outlook, explaining that fiscal deficit targets may be missed by as much as 20 percent, citing lower rates for corporate income taxes and increased government spending. Corporate income taxes will fall to 30 percent this year from 35 percent the previous year under the expanded value added tax law. However, these expectations are not within the “realm of fiscal discipline," Teves said. Allowing the deficit to widen this much will force him to borrow from local and/or foreign creditors, a prospect Teves dismisses. "I am not comfortable with a deficit equal to three percent of GDP. That is not in the realm of fiscal discipline," he reiterated. Next: Body to scrutinize how domestic economy affects collection efforts Body to scrutinize how domestic economy affects collection efforts The DBCC will continue to monitor how the domestic economy will be affected by external developments and how these will affect revenue collection efforts, Finance Secretary Margarito B. Teves said in a statement. "We are hopeful that tax administration measures such as Oplan Kandado program will help us increase tax revenues despite the adverse developments," Teves said. “We are hopeful that Congress will support us in our proposed revenue measures to further increase revenues which we need to sustain economic growth and provide needs of our people." An initiative of Bureau of Internal Revenue Commissioner Sixto S. Esquivias IV, Oplan Kandado aims to strictly impose administrative sanctions for failing to comply with basic tax requirements. Business operations of non-compliant taxpayers will be suspended and their establishments will be temporarily closed if they will be found to have violated certain tax laws. Under Revenue Memorandum Order (RMO) No. 3-2009 issued last January, business operations can be suspended or temporarily closed for failure to issue receipts or invoices by a value added tax (VAT)-registered or registrable taxpayer; failure to file a VAT return; understatement of taxable sales or receipts by 30 percent or more of the correct amount thereof in the case of a VAT-registered or registrable taxpayer; or failure to register. Next: Govt reiterates measures to increase tax collection Govt reiterates measures to increase tax collection To ensure a sustainable source of revenues, the government is looking at improving tax effort to 14.3 percent of GDP this year from 14 percent last year. Teves cited intensifying tax administration measures to further increase tax compliance and enforcement such as the recently launched Oplan Kandado program of the BIR. Customer service of revenue agencies will also be improved to make filing and payment of taxes easier for taxpayers, he said. The Finance department is also pushing for revenue enhancement measures that will require legislation. These are rationalization of fiscal incentives, simplification of net income taxation for self-employed and professionals, and the removal of the BIR and BOC (Bureau of Customs) from salary standardization. The department also seeks to simplify the structure of the excise tax for tobacco and alcohol products and adjust them periodically according to inflation. Teves said the proposed amendment to the sin tax law alone will generate additional revenues of P20 billion in the first year of implementation. In 2008, the government kept its budget deficit below the P75 billion programmed, or one percent of the gross domestic product (GDP), at P68.1 billion, or 0.9 percent of the value of goods and services produced within the country. The country's economic managers were previously looking at a fiscal gap of P102 billion or 1.2 percent of the GDP. But this was increased to allow more spending for critical infrastructure and social services that will help achieve a "respectable" level of economic growth, Teves said earlier. Besides preparing for the upturn after the financial storm passes, Teves said the fiscal program was formulated to "support the continued improvement in our tax effort and sustain the reduction in our debt burden amid tight financing conditions." - GMANews.TV