The government aims to raise P3.2 trillion in revenues in 2019, including about P181.4 billion from tax reform, which will help sustain its strong fiscal performance and aggressive spending plan into the medium term, Finance Secretary Carlos Dominguez III told lawmakers on Tuesday.

Dominguez said at the briefing by the interagency Development Budget Coordination Committee (DBCC) at the House of Representatives that this revenue goal is equivalent to 16.5 percent of gross domestic product (GDP), which is an improvement from the 15.6 percent attained in 2017 and this year’s target of 16.2 percent.

The projected amount of P181.4 billion will come from the Tax Reform for Acceleration and Inclusion Act (TRAIN), as well as from the proposed tax amnesty program and adjustments in the Motor Vehicle Users Charge (MVUC), which comprise Package 1B of the Duterte administration’s comprehensive tax reform program (CTRP), Dominguez said.

President Rodrigo Duterte submitted to the Congress last July 23 a P3.757 trillion proposed national budget for 2019.

According to the Finance chief, the government expects tax revenues to grow by 12.7 percent in 2019 as the Bureaus of Internal Revenue (BIR) and of Customs (BOC) are expected to post collection growths of 13.1 percent and 11.3 percent, respectively.

Dominguez informed lawmakers that from January to June of this year, total revenue collection reached P1.41 trillion, which is 20 percent higher than the same period last year and exceeded the target by 8 percent or P105.7 billion.

Dominguez also assured lawmakers during that the DBCC briefing for the House committee on appropriations that the Philippines’ fiscal position remains strong, with revenues expected to be above target, the debt burden continuing its downtrend and the government’s spending program sustainable over the medium term.

“This administration is committed to long-term fiscal sustainability. Be assured we will continue to exercise fiscal responsibility and maintain sound fiscal policies to support higher and more inclusive growth,” Dominguez said during the DBCC briefing. “Fiscal strategy remains to be prudent, sustainable, and supportive of the government’s development objectives.”

To generate additional revenue streams that will enable the government to sustain its massive infrastructure buildup and increased spending on human capital development, Dominguez said the Duterte administration will push for the passage into law of the rest of the packages under its CTRP.

Following the enactment of TRAIN, Dominguez said the DOF submitted the rest of the Duterte administration’s tax reform packages to the Congress and is hoping that lawmakers would approve them this year. These are:

· Package 1B;

· Package 2, which aims to lower the corporate income tax (CIT) rate and broaden the tax base by modernizing investment tax incentives;

· Package 2 plus, which proposes to increase the excise tax on tobacco and alcohol products and increase the government’s share from mining;

· Package 3, which institutes reforms in property taxation to make the valuation system more equitable, efficient, and transparent; and

· Package 4, which proposes to rationalize capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments.

“The tax reform will bring about growth with equity and heightened productivity that will help us attain our aspiration to be a high-middle-income country by 2022, lifting one million Filipinos from poverty each year,” Dominguez said.

He enumerated the following as among the key factors that contributed to higher-than-expected total revenue collections for the first six months of 2018:

· Tax collections, which accounts for almost 90 percent of total revenues, grew by 17 percent or 3 percent above the target, with the BIR achieving a 14 percent increase in collections, and the BOC growing its collection by 33 percent. The TRAIN Law, which was implemented at the start of 2018, contributed P33.7 billion in revenues for the first half of the year – surpassing the government’s target by P3.6 billion;

· Non-tax revenues went up by 45 percent in the first half of 2018 compared to the same period last year owing to higher Treasury collections of dividend remittances on national government shares of stocks, guarantee fees, and share in the profit of the Philippine Amusement and Gaming Corporation (PAGCOR); and

· Higher collections from other offices also contributed to the increase, which includes the one-off transfer of P13.5 billion in bond proceeds from the United Coconut Planters Bank (UCPB) for the Coconut Industry Investment Fund (CIIF).

In 2017, Dominguez said the government attained its highest revenue collection growth of 12.6 percent since 2012.

Last year, Dominguez said that in relation to GDP, revenues rose by 0.4 percentage points while tax revenues rose by 0.5 percentage points. The tax to GDP ratio of 14.2 percent in 2017 was the highest since 1998.

He said the government achieved a strong tax revenue growth rate of 13.6 percent in 2017 mainly as a result of more efficient tax collection as well as the administrative reforms carried out by the BUR and BOC.

The BIR’s collections rose by 13.1 percent in 2017, while the BOC also grew its collections by 15.6 percent. The collection of other revenue-generating agencies increased by 20 percent.

Non-tax revenues rose by 3.2 percent as a result of higher dividend collections from other offices, which offset the lower collection of interest income resulted from the rationalization of the Bond Sinking Fund.

In 2017, the total consolidated public sector financial position (CPSFP) registered a deficit of P3.3 billion or 0.02 percent of GDP owing to higher government deficit offset by improved performance of other sectors, Dominguez said. Other public sectors registered a combined surplus of P311.4 billion with the local government units (LGUs) posting a cash surplus of P217.4 billion in 2017.

The CPSFP estimated for 2018 shows a deficit of 0.9 percent of GDP. For 2019, the government expects a higher CPSFP equivalent to 1.1 percent of GDP, Dominguez said.

With tax reforms and continuing improvements in tax administration, the government expects to improve the ratio of revenues to GDP from 15.6 percent in 2017 to 17.6 percent by 2022, Dominguez said.

He said the ratio of tax revenues to GDP is projected to increase from 14.2 percent in 2017 to 16.9 percent by 2022, which would bring the tax effort to about the regional average.

“Government spending will also continue to be a growth driver for the economy through public infrastructure investments and human capital development,” Dominguez said.

He said the government expects expenditures to reach 20.7 percent by 2022, with the transition to a cash-based budgeting program enhancing the efficiency of national governments’ disbursements and eradicating underspending.

While the fiscal deficit would be adjusted slightly upward to 3.2 percent in 2019, it will revert to 3.0 percent until 2022, Dominguez said.

With sustainable fiscal policy and prudent debt management, Dominguez said the government expects the debt-to-GDP ratio “to continue its downward trajectory path in the medium-term from 42.1 percent in 2017 to 38.6 percent in 2022.”

The government’s financing program will continue to favor domestic borrowings, following a 65:35 mix in 2018 and a 75:25 mix from 2019 to 2022.

“Our proactive liability management agenda has decreased the burden of debt on our budget, creating more fiscal space to fund social commitments,” he said.

As a percentage of revenues, interest payments are down from 31.7 percent in 2006 to 12.6 percent in 2017, while as a percentage of expenditures, interest payments are also down from 29.7 percent in 2006 to 11 percent in 2017.

As of end-June 2018, both of these ratios continue to decline, now at 11.7 percent and 10.3 percent, respectively.

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