The Duterte administration’s proposed comprehensive fiscal reform program is designed to make growth truly inclusive for all Filipinos and enable the government to shield the country’s most vulnerable sectors from new market uncertainties triggered by a surging worldwide backlash against globalization, Finance Secretary Carlos Dominguez III said.
Dominguez said the new government is advancing a three-pronged strategy focused on improving budget efficiency and transparency, strengthening tax administration, and reforming tax policy, precisely to shield Filipinos from the market volatility spawned by this emerging pattern of resurgent protectionism across the globe.
“We should seize the ‘Cinderella moment’ we now have to quickly move the fiscal reform package and create a buffer for the most vulnerable among our people,” Dominguez said.
He said “this strategy will vastly improve our fiscal base, especially when global prospects are becoming more uncertain.”
Dominguez pointed out that the week-ago victory of maverick businessman Donald Trump in the US presidential elections, which has sent shockwaves across the globe and initially unsettled markets, could signal the beginning of “trade wars and weak growth,” if Trump pushes through with his pledge to implement protectionist policies to keep jobs in America.
But even before the Trump phenomenon, Great Britain’s referendum vote to leave the European Union—now commonly known as “Brexit”—had already shaken the globe.
“That (Brexit) vote represents, as does Mr. Trump’s victory, a backlash to globalization. That backlash could express itself in other ways over the foreseeable future,” Dominguez said.
He said the uncertainty created by this revival of protectionism will likely lead to volatility and a risk-averse attitude among many of the Philippines’ trading partners, and result to slowing global trade and weaker global growth.
He pointed out that in our country, President Duterte won on the promise of delivering truly inclusive growth and substantially reducing poverty.
“Filipino voters cast a decisive vote for the most decisive candidate. President Duterte was elected by a landslide on the promise of genuine change,” Dominguez said.
To take advantage of the Philippines’ ‘Cinderella’ moment, a fiscal program that encompasses budget reforms as well as reforms in tax policy and administration, needs to be implemented now, Dominguez said.
These reforms, he said, will ensure that President Duterte would be able to deliver on his promise of inclusive growth while shielding the country’s most vulnerable sectors from the unpleasant effects of external developments triggered by the rejection of globalization by some of the world’s most industrialized economies.
Dominguez said that besides these reforms, the government also has the advantage of a confluence of positive factors. “Capital is abundant and interest rates are low. Inflation is benign and our credit ratings impressive for an emerging economy. Regional support is strong and business confidence high.”
“When people see their hard-earned tax payments used properly, public support for tax reform will improve,” Dominguez said.
On improving tax and customs administration, the government is expected to collect an additional P200 billion in revenues, or about 1 percent of the GDP, over the next three years, he noted.
Improvements in tax administration would be done by focusing on taxpayer satisfaction, protecting revenues and regaining the public’s trust.
These would entail the implementation of major reforms that include expanding the Bureau of Internal Revenue (BIR)’s Large Taxpayer Service to cover the top 3,000 corporations accounting for 75 percent of total tax revenues; simplifying forms and procedures for small taxpayers to improve compliance and ease of payments; continuously improving electronic payment systems; and enforcing risk-based audits to make the process more transparent.
“At the same time, we are intensifying the anti-corruption and tax evasion effort, recruiting 12,000 young people of integrity and competence to fill the BIR’s large vacancy,” Dominguez said.
At the Bureau of Customs (BOC), significant improvements would be done through the Customs Modernization and Tariff Act’s implementing rules and regulations, which will be completed soon, Dominguez said.
“This will advance both anti-corruption and anti-smuggling operations at the BOC, while improving trade facilitation. Electronic systems are being upgraded to achieve paperless transactions and reduce opportunities for corruption,” he noted.
Dominguez said the Department of Finance (DOF) will also deploy customs personnel to the country’s major trading partners to find out why the government appears to be losing P230 billion annually as shown by the huge discrepancy between import declarations here and the export declarations filed in our partner economies.
“We will start with appointing a fiscal attaché to China,” Dominguez said.
Additional measures to be implemented in the customs bureau include intensifying border patrols and other ways to curb technical smuggling and “the recruitment of about 3,000 young and talented people willing to work in a corruption-free BOC,” he added.
On tax policy reforms, the DOF has already submitted to the Congress its first tax reform package, which aims to make the tax system simpler and more efficient, and at the same time fairer and more progressive through the lowering of personal income tax (PIT) rates to make these at par with the region, expanding the VAT base by limiting exemptions to necessities such as raw food, education and health care, while increasing excise taxes on oil and automobiles.
Dominguez said the tax reform plan also seeks to protect the poor and the vulnerable, which is why the Duterte administration “commits that the poorest 50 percent of our population will not be worse off after the tax reform in implemented.”
“The greater revenue gained from taxing the rich will be used to fund social services and targeted transfers that benefit the poor,” he said.
