DOF unveils P350-B budget plan to help move past debt
THE Ministry of Finance (DOF) has proposed that the next administration implement a set of fiscal measures expected to generate a total average of almost 350 billion pesos per year from 2023 to 2027 with the aim of helping the country exceed its debt at a faster rate.
Just over a month from the end of the Duterte administration, finance officials finally unveiled their proposed three-pronged fiscal consolidation and resource mobilization plan on Wednesday, which included the imposition of several taxes , among others.
To prevent the government from using borrowing to pay off the 3.2 trillion pesos of additional debt the government incurred during the Covid-19 pandemic, the Treasury Office said that at least 249 billion pesos a year additional revenue needed to be raised. Estimated to generate an annual average of 349.3 billion pesos in revenue, the proposed fiscal consolidation plan will not only help the government achieve this, but will also help the country reduce its debt as a share of its economy, by compared to the 60.7% projected this year. to 55.4% in 2025. Without the reforms, the country’s debt-to-GDP ratio in 2025 is expected to reach 58.2%.
Finance Secretary Carlos G. Dominguez III told reporters that their proposed “comprehensive” plan that contains “fair, effective and corrective” measures will help the new administration address the long-term financial problems caused by the pandemic. of Covid-19 as well as the ongoing Russian-Ukrainian crisis.
“The plan is achievable and is designed to secure the gains we have made under the Duterte administration and to ensure the government can continue to make economic investments and pursue stimulus programs, maintain its high credit ratings, pull itself out more quickly of its debt. , and protect the Philippine economy from future external shocks,” Dominguez said.
THE finance chief has warned that there could be “serious and spiraling consequences” on the country’s financial and economic health if the fiscal consolidation plan is not pursued.
Undersecretary Valery Joy Brion, chief finance officer of the department’s Strategy, Economics and Results group, pointed out that fiscal and economic crises could ultimately result from the removal or even dilution of the proposed fiscal consolidation plan.
Of the total estimated average annual revenue from the implementation of the recommended tax measures, about 41%, or an average of 142.5 billion pesos per year, is expected to come from its proposals to broaden the tax base on value added (VAT), to repeal certain VAT exemptions, and the possible reduction of the VAT rate next year.
However, Brion stressed the need to first consider broadening the base before considering reducing the VAT rate.
“For the broadening of the VAT base and the possible reduction of the VAT rate, we seek to limit the zero rate of VAT to direct exports and to repeal the exemptions from VAT, except for education, products agriculture, healthcare, finance and raw food,” Brion said. .
In addition to this, she said they are also proposing to consider repealing the immediate expenditure of input VAT on capital goods as part of the Tax Reform Act for Acceleration and inclusion (TRAIN) and to reimpose the 60-month limit for crediting input VAT on capital goods.
Postponement of PIT cuts to ’25
MEANWHILE, the DOF is also proposing the 3-year deferral of the scheduled reduction in the second bracket of personal income tax (PIT) rates until 2025. It was originally to be implemented in the year next under the TRAIN law.
Based on DOF estimates, the postponement of the reduction in IRP rates will result in an additional annual average of 97.7 billion pesos in revenue per year.
For next year, the DOF also recommended these measures: the imposition of a single, unitary rate based on the gross vehicle weight of all motor vehicles (annual average of 38.3 billion pesos in revenue) , the imposition of an excise tax on vans and motorbikes (P19 0.2 billion), the imposition of a 12% VAT on digital service providers (13.2 billion pula), the imposition of gaming taxes and royalties (P13.1 billion) and streamlining the mining tax regime (P11.4 billion).
Similarly, the DOF also suggested imposing a P20 excise tax on single-use plastics (1 billion pesos), expanding tax coverage on non-essential and semi-essential goods, and strengthening tax office for social media influencers income tax.
The two remaining packages under the Duterte administration’s overall tax reform agenda that are still pending in the Senate – the Passive Income and Financial Intermediary Taxation Act (Pifita) and the assessment and valuation of real estate – were also included in the proposed fiscal consolidation plan.
For 2024, the DOF has also projected 91.4 billion pesos in revenue from its health tax reform proposal, which includes increasing the excise tax on cigarettes and e-cigarettes, imposing a unit rate of 12 pesos per liter of volume on sugary drinks and the taxation of alcopops. like fermented liquors.
He is also considering an annual average of 35.4 billion pesos from his proposals to increase the excise tax on petroleum by 1 peso per liter for at least 3 years, to repeal Presidential Decree 972 and to impose and to increase the excise tax on domestic coal, and to increase excise tax rates on imported coal.
Other measures included in the DOF plan include clarifying the tax treatment of cryptocurrency transactions and strengthening the ability of the Bureau of Internal Revenue to conduct transfer pricing audit.
For 2025, the DOF has also listed the imposition of a carbon emissions tax.
At the end of March, the stock of national government debt reached a new high of 12.68 trillion pesos. The government resorted to more borrowing amid the Covid-19 pandemic due to falling revenue and increased spending driven by Covid-related spending.
The national government’s debt-to-GDP ratio also hit a 17-year high at 63.5%, above the 60% threshold recommended internationally by multilateral lenders for emerging markets like the Philippines and also the Philippines. highest since the country’s debt-to-GDP ratio reached 65.7% in 2005 under the Arroyo administration.