An International Monetary Fund (IMF) team has given its nod to the comprehensive tax reform plan of the Department of Finance (DOF) for being “net revenue positive with due attention paid to equity.”

It also expressed support for the complementary proposal to relax the country’s bank secrecy law as part of this major overhaul of the Philippine tax system.

In a country assessment report released last month, a staff team for the IMF Executive Board said this “Staff supports the authorities’ push for a comprehensive tax policy reform that is net revenue positive with due attention paid to equity.”

This IMF staff team said the “Staff supports the Department of Finance’s efforts to amend the bank secrecy law to allow the tax authorities access to individual bank account information and make tax evasion a predicate crime for money laundering in order to improve the efficiency and equity of revenue collection.”

It released barely a week ago this report for the IMF Executive Board’s consideration, following the July-August consultations with Philippine authorities on economic policies and developments under the new government.

The World Bank and the Spanish government, among others, have also thrown their support behind the DOF’s tax plan.

A few weeks ago, top fund manager Mark Mobius said economic risks remain “benign” in emerging Asian markets, including the Philippines, where he believes the assumption to office of President Rodrigo Duterte would be “good” for the country in the long run.

Mobius, who has spent more than 40 years working in emerging markets all over the world, said in a television interview that investors should not be overly concerned over Duterte’s firebrand image, given that the Philippine president belongs to a new wave of “more populist leaders” across the globe who are effective in implementing law and order in their respective countries, “which is a good thing.”

“I think the marketing impact is going to be good to longer term. Once he (Mr. Duterte) gets his house in order….I think he’s going to be softening and you’re going to see the reform taking place,” said Mobius, who is executive chairman of the Templeton Emerging Markets Group.

When asked if he does not see anything negative about Mr. Duterte’s use of colorful language, Mobius said: “No I really don’t. I think we’re seeing this globally, more populist leaders, people who are effective in pushing down crime and corruption. You’re seeing that all over the world, which I think is a good thing.”

Mobius said concerns about the Philippines and Duterte are “overdone” considering that other countries in Asia, like Indonesia and Thailand, are also dealing with their own political issues.

“I don’t see downside anywhere, because there are individual problems in each country. There’s concern about Duterte and the Philippines which I think is overdone. There are concerns about reform in Indonesia; in Thailand, the political environment may be questionable. But all in all, the situation looks pretty benign in Asia,” he said.

This “benign” situation, Mobius said, also includes the Philippines, where a successful campaign against crime and corruption spearheaded by Duterte “will be very positive for the [country].”

In a recent meeting with Dominguez, World Bank officials led by Vice President for East Asia and the Pacific Victoria Kwakwa had offered to provide the new government with technical assistance and to share best practices and experiences in other countries to help the DOF effectively implement its proposed reforms on tax policy and administration.

World Bank Country Director Mara Warwick noted, meanwhile, that these reforms can become game changers that could improve transparency, monitoring and efficiency in tax administration, which could in turn further expand the tax base.

In a separate meeting with Dominguez, Spanish Ambassador to Manila Luis Antonio Calvo Castaño had congratulated the Philippine government for its “progressive” and “on-point” tax reform program that aims to reduce personal and corporate income tax rates while raising fresh revenues to bankroll social protection programs for the most vulnerable sectors.

Castaño pointed out that DOF’s tax plan is “on point, progressive and would help ease the burden of the middle class and vulnerable sectors.”

The DOF submitted last month to both chambers of the Congress the Package One of its reform plan—dubbed the Tax Reform for Acceleration and Inclusion Act—to help the Duterte administration generate, according to Finance Secretary Carlos Dominguez III, enough revenues to bankroll its 10-point socioeconomic agenda for inclusive growth.

To free some 10 million Filipinos from poverty and turn the Philippines into an upper middle-income economy by the time Mr. Duterte leaves office in 2022, Dominguez said the government will push this tax plan in the Legislature and raise its deficit spending to 3 percent of the Gross Domestic Product (GDP) so it can invest massively in infrastructure, human capital and social protection for society’s most vulnerable sectors.

At a recent business forum at the Shangri-La at The Fort in Taguig City, Dominguez said among the measures being studied by the DOF are relaxing the strict bank secrecy law and making tax evasion a predicate crime to money laundering.

Dominguez also bared plans at a separate forum in Makati City for the government to mount four tax amnesty programs as part of the DOF-proposed overhaul of the country’s tax system.

In the IMF report, the Staff Team said that the DOF has come up with “a package of reform measures that includes lowering personal and corporate income taxes and simplifying tax processes.”

“The revenue erosion from the lowering of income tax rates would be offset by reform initiatives that include broadening the tax base and collection, reviewing fiscal incentives, adjusting the fuel excise tax rates, imposing taxes on unhealthy food items, and eliminating some VAT (value added tax) exemptions,” it said.

With these reform measures, the Staff Team said the government aims to increase total revenue effort to about 17 percent of GDP in 2018 to about 18 percent of GDP by 2022.

The Staff Team said it supports the government’s target to “increase public infrastructure spending to at least 5 percent of GDP over the medium term.”

“The authorities’ overall strategy for infrastructure development is to increase infrastructure spending to 6.0 to 7.0 percent of GDP during the period 2017–2022 to attain higher growth potential in the medium term. In support of this, the authorities have initiated reforms in investment programming and budgeting,” it added.

Dominguez revealed in various tax forums that the ultimate goal of the tax reform plan is to set the stage for government investments of an additional P1 trillion per year so the Philippines can become an upper middle-income state by 2022 and a high-income economy in one generation or by 2040.

Dominguez said the DOF has drafted its comprehensive tax reform program in less than 90 days into the Duterte administration and has already submitted the first portion of this package to the House ways and means committee last Sept. 26.

Package One includes measures to lower personal income tax rates, adjust the fuel excise tax and indexing it to inflation, broaden the VAT base, and restructure the tax on automobiles, except for trucks, buses, cargo vans, jeepneys, jeep substitutes and special purpose vehicles.

He said Package Two of the tax reform plan now being reviewed by the DOF involves reducing corporate income taxes and reviewing fiscal incentives to ensure that these are time-bound, performance-based, targeted and transparent—just like in other countries.

Dominguez has informed legislators that the DOF has “put the packages together so that there will be a balance between revenue-eroding measures and revenue-enhancing measures.”

“To be successful, we must emphasize that the tax policy reform program needs to be part of a larger reform program that includes: one, reforming tax administration at the BIR and the BOC (Bureaus of Internal Revenue and of Customs); two, improving governance and reforming the budget; three, leveling the playing field by enhancing competition; four, simplifying business regulations; five, securing property rights; six, promoting food security, and; seven, addressing traffic, crime and vice,” Dominguez said.

In the same IMF report, the Staff Team also cited the government’s objective of rapidly reducing poverty under its 10-point socioeconomic agenda.
It welcomed the new government’s intent to sustain high growth and “accelerate poverty reduction,” as this Staff Team of the IMF Executive Board noted that poverty, income inequality and unemployment persisted in recent years despite the country’s favorable macroeconomic performance.

It pointed out that former Davao City Mayor Duterte, who was inaugurated as president in June with a 10-point agenda calling for a “more ambitious” inclusive growth strategy, had tapped into a desire by Filipinos for change to tackle “the high levels of poverty and inequality that persists especially in rural areas despite years of robust economic growth.”

Dominguez said that to mitigate the impact of the tax increases on the poor and low income households, the DOF has proposed earmarking for highly targeted subsidies to fully protect the poorest 50 percent of households and partially protect the working class.