ADB urges constructive view of excise tax

MANILA, Philippines — The Asian Development Bank (ADB) said the Tax Reform for Acceleration and Inclusion (TRAIN) Law is a necessary revenue collection reform to shore up revenue for vital government expenditure.

The tax reform law which was implemented beginning this month lowers personal income taxes but imposes higher tax on fuel, automobiles, sugary beverages and tobacco.

Revenue from the first package of the tax reform agenda would be used to fund the administration’s ambitious infrastructure program as well as social services for vulnerable sectors.

“We should not just look at the negative impact of excise tax, we need money to do things which are necessary like infrastructure, transportation, education and so forth,” said ADB president Takehiko Nakao during a forum with the Foreign Correspondents Association of the Philippines (FOCAP) Friday.

In a statement issued yesterday, the Department of Finance said around 70 percent of the incremental revenue from TRAIN have been earmarked for infrastructure while the rest have been allotted for social services including unconditional cash transfers of P200 per month for the country’s poorest households this year and P300 per month in 2019 and 2020.

Nakao said the Philippines needs to improve its tax-to-GDP (gross domestic product) ratio as it is well behind other countries at only around 15 percent compared to developed countries which can be as high as 50 percent.

Countries generally benefit from improvements in tax-to-GDP ratio as this would give governments greater ability to invest in sectors that have a high multiplier effect like infrastructure and other social services.

Amid the higher tax burden on consumer goods and commodities, Nakao said the government must spend the revenues well and maintain the integrity of use.

“It (TRAIN Law) may look deterrent (to consumption) but overall, the Philippines will benefit from it because its tax to GDP ratio is so low. In countries like Sweden and so on, tax to GDP ratio and including social security is more than 50 percent of GDP, but in the Philippines, the revenue to GDP ratio is 15 percent. It is furthest from supporting the needed spending of the government. Of course, it should be spent well and with integrity and should not be misused,” he said.