2009 tax effort trails pre-fiscal crisis trend: World Bank
By Karen Flores, abs-cbnNEWS.com | 11/04/2009 7:44 PM
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MANILA - The Philippines is currently on the same path that led to the fiscal crisis, which was averted a couple of years ago, the World Bank noted in a report.
In its latest quarterly report, the multilateral lender said that the culprit then--low tax collections--remains to be a problem now.
In its Philippine Quarterly Update, which was released on Wednesday, the World Bank noted that the country's tax effort, sans the negative impact of recent storms, is likely to reach 12.8% of gross domestic product (GDP) this year, 1.2% lower than the budgeted 14%.
"The resulting tax effort would be the same as in 2002, before the E-VAT reforms," the World Bank said.
E-VAT (Expanded Value-Added Tax) broadened the VAT coverage to include fuel, electricity, and transport, among other previously exempted sectors. Additional taxes collected after the Revised VAT law was passed in 2005 helped avert an impending fiscal crisis, which economics professors highlighted in mid-2004.
Tax effort refers to the ratio of taxes collected by the main revenue agencies, Bureau of Internal Revenue and Bureau of Customs, to the size of the country's economy, which is mainly measured by the GDP.
As an economic indicator, tax effort mirrors the government's ability to raise revenues for infrastructure, social services, and other initiatives.
A low tax effort results in the government scrimping on public services. The Arroyo government and previous administrations have resorted to additional borrowings from foreign and local sources to curb the budget gap.
Worse with typhoons
Twin storms "Ondoy" and "Pepeng" (international code names Ketsana and Parma) are likely to make the tax effort ratio worse.
Earlier, analysts said that the impact of the typhoons could further reduce tax effort to as low as 11%.
According to the data from the Department of Finance, that low level approximates the tax effort in 1986 and 1988, when the Philippine economy was also reeling from global and local economic concerns.
The government had said the recent typhoons could have shaved off as much as 0.4% from the country's full-year GDP.
Slipping
The country's tax effort has been slipping since 2006 at 14.3% of GDP. It has now reached 13.5% of GDP for the first half of the year.
Across the region, the Philippines also lags in terms of tax effort. The country only managed to outperform Indonesia, which had a tax effort of 13.3% for the first half of the year.
A slipping tax effort concerns analysts who have been more forgiving of soaring government expenses, which helped countries cushion their economy against current global economic slowdown.
In an interview with ANC's Business Nightly last month, Citisec Online's April Lee Tan commented that the tax effort as a component of the Philippines' widening budget gap--the difference between tax collections and government expenses--does not bode well for the country.
Bad for MDGs, too
Last week, the Philippine Institute for Development Studies (PIDS) said the country's main concern is its tax effort as this may be a major roadblock to achieving the Millennium Development Goals (MDG) by 2015.
The MDGs, an international agreement which spans from 2004 to 2015, are aimed at assessing social problems and promoting growth in basic sectors. The goals touch on areas of hunger, education, gender equality, and health care, among others.
PIDS called for medium-term policy responses such as fiscal reforms, social protection initiatives, and the revival of private investments. By Karen Flores, abs-cbnNEWS.com
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