The Philippines should continue to adopt fiscal reforms, particularly tax reforms still pending in Congress, to sustain these fiscal gains, the Department of Finance (DOF) said.
Based on its latest DOF economic bulletin, it noted that the recent fiscal reforms have boosted the government’s tax effort by 0.25 percentage point to 14.76 percent in the third-quarter from 14.51 percent in the same period last year.
“This is the second highest third quarter tax effort, next to the pre-pandemic 2019 level which was the highest in the country’s history,” the DOF said in a statement on Friday, Dec. 10.
Tax effort is the ratio of tax collected in relation to the domestic economy, which is measured in terms of gross domestic product (GDP).
Aside from fiscal reforms, the digitalization of revenue collection operations of the Bureau of the Internal Revenue (BIR) and Bureau of Customs has also enabled the two main tax agencies to improve collection efficiency.
However, the BIR tax effort dropped marginally in the third-quarter from 11.3 percent to 11.24 percent due to the shift to imported petroleum products with the closure of a domestic refinery, the DOF said.
The custom bureau, on the other hand, saw its tax effort rose from 3.11 percent to 3.42 percent, up by 0.31 percentage point.
“Due to fiscal reforms, the country was able to fund the unprecedented fiscal requirements imposed by the pandemic and, at the same time, protect its strong macroeconomic fundamentals,” the DOF said.
Last September, Finance Secretary Carlos G. Dominguez III had urged the Senate to help guarantee the Philippines’ "strong economic rebound" from the lingering pandemic by swiftly approving the remaining economic reform measures.
Dominguez said the remaining bills of comprehensive tax reform program (CTRP) will attract more foreign direct investments (FDIs), deepen the capital markets and further make the tax system simpler, fairer and more efficient.
“In the remaining period of the President’s term, we will rapidly modernize governance, continue our public investments, and pursue market-friendly reforms to achieve a strong economic rebound,” Dominguez told the Senate.
These reforms include the amendatory bills to the Foreign Investments Act (FIA) and Public Service Act (PSA) to enable the economy to attract more FDIs and ensure long-term growth.
Dominguez also pushed the approval of the Real Property Valuation Reform Act and the Passive Income and Financial Intermediary Taxation Act (PIFITA), the remaining CTRP Packages 3 and 4, respectively.
He said these legislative measures will help achieve a “strong economic rebound” from the pandemic, along with the congressional passage of the Capital Market Development Act (CMDA) of 2021 to further deepen the domestic capital markets.
Another investment-friendly measure endorsed earlier by the DOF and Malacanang—the proposed amendments to the Retail Trade Liberalization Act (RTLA)—has already been passed on third and final reading by both the Senate and the House of Representatives.
The RTLA is pending in the bicameral conference committee.
The House has likewise passed the bills proposing amendments to the PSA and FIA; Packages 3 and 4 of the CTRP, and the CDMA. These bills are pending in the Senate.