The government is planning to raise its revenue target for this year amid an improvement in collection in the first five months of the year, Finance (DoF) Secretary Benjamin E. Diokno said.
“Our robust fiscal performance suggests that we are on track to achieving our targets under the medium-term fiscal framework. We are planning to revise our revenue collection targets further upward to take into consideration the implementation of tax measures that we are prioritizing in the medium term,” he said during the Kapihan sa Manila Bay forum on Wednesday.
The Development Budget Coordination Committee set a PHP 3.729-trillion revenue target, equivalent to 15.2% of the gross domestic product (GDP), for this year.
“Because we have exceeded our collection, we are revising upward. We will do that on a quarterly basis,” Mr. Diokno said.
The National Government’s budget deficit shrank by 28.86% to PHP 326.3 billion in January-May, as revenue collection rose by 10.83% to PHP 1.59 trillion.
The Finance chief said pending tax reforms would help boost revenues, citing the Real Property Valuation and Assessment Reform, Passive Income and Financial Intermediaries Taxation Act.
He also cited the value-added tax (VAT) on digital services, tax on single-use plastics, motor vehicle user’s charge, the rationalization of the mining regime and the recently proposed junk food tax and increase on the excise tax on sweetened beverages.
Mr. Diokno said the government is working on improving its VAT system to make collections more “effective, efficient and responsive to the country’s economic activity.”
This may include a review of existing VAT exemptions and zero rating, he added.
“Under the existing policy structure for VAT or taking into account the existing VAT exemptions and zero rating, the administrative gap computed for 2018 is PHP 546 billion, or equivalent to 3% of GDP. This is 41.6% of potential revenue under the existing policy structure,” he said.
“This revenue loss would be higher if we introduce more exemptions to the VAT system. The government cannot afford to lose additional revenues on VAT.”
Mr. Diokno said the Department of Finance “does not support any legislative or nonlegislative proposals that would further erode the VAT revenue base.”
However, he cited “worthwhile exemptions,” such as schools and hospitals.
Mr. Diokno said the DoF is working on the initial list of VAT exemptions up for review.
“My staff is already working on it, so (it may be ready) before the end of the year. I want all major reforms to happen before the 2025 elections,” he added.
Citing a World Bank study in 2018, Mr. Diokno said VAT exemptions accounted for 29.1% of potential VAT revenue, while the administrative gap accounted for 29.5%.
“Without exemptions, the potential revenue for VAT in 2018 is PHP 1.85 trillion. In contrast, the actual VAT collection in 2018 was only PHP 784.2 billion,” he added.
Late last month, Mr. Diokno said the government was working with the International Monetary Fund to study the country’s VAT system.
Data from the DoF showed that the government should be collecting VAT equivalent to 10.7% of GDP “without exemptions, zero rating, and at 100% efficiency.”
“At present, we are only collecting around 4.7% of GDP which makes the combined tax policy and administrative gap to around 6%,” Mr. Diokno said.
He also said he prefers the monthly filing of VAT returns instead of quarterly.
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, taxpayers this year were required to file their VAT returns quarterly instead of the previous monthly filing.
The TRAIN Law changed the way they remit the VAT, which used to be monthly. They made it quarterly because the revenues are more likely left idle. “We have to go back to the monthly collection,” he added.
However, the BIR last month announced the option for taxpayers to file their returns on a monthly or quarterly basis.
Data from the DoF showed that its revenue effort in the first quarter fell to 14.6% of GDP from 15.9% a year earlier. The rate is a measure of the government’s efficiency in raising revenue. The DoF attributed the slower revenue effort to the shift of VAT collections to a quarterly basis. — Luisa Maria Jacinta C. Jocson