No new taxes this year, says Recto

Finance secretary Ralph G. Recto said on Wednesday that he does not plan to introduce new taxes as elevated inflation remains a “most urgent concern.”

At a press briefing, the new Finance chief said he will not pursue his predecessor’s proposals to tax junk food and increase excise taxes on sweetened beverages.

“There are no plans of imposing additional new taxes. I think our first job is to collect what is on the table. That’s why we are planning with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC) commissioners to improve efficiency,” Mr. Recto said.

Amid the current economic challenges, he said the government should not rely solely on implementing new or additional taxes.

“Inflation is high. When you impose taxes, that is also inflationary. So, I don’t think that now is the time to impose very high taxes,” Mr. Recto added.

Inflation remains elevated amid rising food and energy costs. In 2023, full-year inflation stood at a 14-year high of 6%. The Bangko Sentral ng Pilipinas (BSP) sees inflation easing to 3.7% this year.

Mr. Recto said the Department of Finance (DoF) is currently in the process of “tweaking” the current tax proposals to take into account these inflationary pressures. These fine-tuned tax proposals will be presented before the Legislative-Executive Development Advisory Council by Thursday, and to senators by next week.

“The fine-tuning (of these tax proposals) will be on what is fairer, number one. What is easy to collect, number two. What is practical. That’s how we’re looking at it,” the Finance chief said.

Mr. Recto said there are no plans to impose any new consumption-based taxes for at least this year.

He is not keen on pushing for a tax on junk food and an increase in excise taxes on sugary drinks, which were proposed by then-Finance Secretary Benjamin E. Diokno.

“I don’t think that’s on the table… Those two proposals were in one proposal which was scrapped by the DoF and I don’t intend to put it back,” he said.

Mr. Recto also said the DoF is tempering the proposed hike in motor vehicle user charges, which was approved on third reading at the House of Representatives in December.

“Today, 50% or thereabouts of vehicles are unregistered. If you impose higher taxes, maybe more vehicles will not register. I think we have to temper some of these increases because like I said, they’re also inflationary,” he added.

Meanwhile, Mr. Recto also said that he supports the current version of the military and uniformed personnel (MUP) reform, which requires only new entrants to contribute to the pension fund.

“The government has a social contract with our MUPs. And based on the law, we promised them a certain pension. So, I think the government should respect that,” he said, noting the Senate version reflects that stance.

“What we can do for the reform is all new entrants, for example, by Jan. 1, 2025, will have a different pension system similar to what civilians have, that they will contribute now to, let’s say, the Government Service Insurance System. There will be a contribution system moving forward,” he said.

Mr. Diokno had previously pushed for requiring all MUPs to contribute due to the risk of a “fiscal collapse” from the current system.

Instead of raising taxes, the Finance secretary said the department will be focusing on optimizing the performance of the BIR and BoC through “creativity, transparency, and efficiency in tax and customs administration.”

“We have to increase our revenues by 15% this year. That’s part of the plan, to be able to finance the National Development Plan or to finance the budget for that matter and to follow our fiscal consolidation plan,” he added.

The DoF said it is targeting to raise PHP 4.3 trillion in revenues this year. Broken down, the BIR is expected to generate PHP 3 trillion, the BoC is tasked to collect PHP 1 trillion, and the Bureau of the Treasury (BTr) is expected to raise PHP 300 billion.

Mr. Recto called on the BIR to expedite the implementation of the Ease of Paying Taxes Act; ensure efficient taxpayer service and intensify its tax enforcement and compliance efforts.

To further boost revenue generation, he said that both agencies must “put an end to corruption” and accelerate digitalization programs.

Addressing inflation
Inflation remains the “most urgent concern” that the government must address, Mr. Recto said, citing growing geopolitical tensions and trade restrictions.

“It’s imperative that we find ways and means to reduce inflation. Now, there are two ways of doing that. One is the Monetary Board, to address demand inflation… the other is the response of the government, particularly in food and agriculture. We have to increase our productivity in agriculture to address inflation,” he added.

Mr. Recto took his oath as a member of the Monetary Board on Monday, filling the last spot on the central bank’s seven-member policy-making body.

The Monetary Board will hold its first policy meeting this year on Feb. 15. The benchmark rate is currently at a 16-year high of 6.5%, after the BSP hiked rates by 450 basis points since May 2022.

“I’m not saying that the central bank will reduce interest rates, but if inflation does go down, then naturally, the central bank will reduce interest rates,” Mr. Recto said.

‘Manageable debt’
Mr. Recto said he is “not that much concerned” about the current level of the National Government’s (NG) outstanding debt.

“It’s not the size of the debt, but your ability to pay (that is important). Nominally, the debt looks high (but) it’s roughly 60% of gross domestic product (GDP), but which is very manageable,” he said.

The NG’s total outstanding debt hit PHP 14.51 trillion as of end-November. Debt as a share of GDP stood at 60.2% at the end of the third quarter, still slightly above the 60% threshold considered by multilateral lenders to be manageable for developing economies.

“I think we’re on track to bringing that debt-to-GDP ratio down. But I don’t think we should sacrifice growth in the process. I think the best way to grow the economy, or the best way to raise revenue, is to grow the economy and to expand the tax base. So, we will endeavor to do that,” he said.

Asked about his thoughts on calls for Charter change, Mr. Recto, a former congressman and senator, said that he supports the rationale behind the push to open up more segments of the economy.

“Frankly speaking, that is a prerogative of Congress. If you look at the Constitution, the Executive branch has no role there. Having said that, there are segments in society that think that you need to further liberalize the economy. That’s why they’re pushing for amendments in the economic provisions of our Constitution. I support that initiative,” he said.

“Personally, I’ve not gotten instructions from the President, but I think the President, to attract more investments, would be amenable to amend the Charter, to liberalize further the economy,” Mr. Recto added. — By Luisa Maria Jacinta C. Jocson, Reporter