Philippines taps ADB anew for $26.5-M LGU tax collection boost

MANILA, Philippines (UPDATE 1 6:03 p.m., June 29) — The Philippines secured yet another loan from the Asian Development Bank (ADB), this time to assist cities, municipalities and provinces in improving their tax collection capabilities amid the coronavirus disease-2019 (COVID-19) pandemic.

In a statement on Monday, the Manila-based multilateral lender said the fresh $26.53 million loan formed part of the agency’s Local Governance Reform Project, which aims to boost real property tax collections of local government units (LGUs) through better valuation systems and digitization of procedures.

Real property taxes account for the bulk of LGU revenues annually. In 2018, the latest year on which data is available, finance department data showed earnings from real property taxes cornered 39.4% of total local revenues.

“Local governments play a critical role in poverty reduction. Mobilizing local revenue in an efficient, equitable, and transparent manner is vital to local governments’ goal of delivering accessible, quality public services,” Robert Boothe, ADB’s senior public management specialist for Southeast Asia, said.

“This new project will provide the digital tools, systems, and local staff training needed to help local governments raise revenue,” Boothe added.

As per loan documents, ADB would provide the bulk of the funding needed to complete the project by 2024, while the government would contribute $4.96 million.

The ADB loan will be charged an interest corresponding to the five-year dollar fixed swap rate plus 0.5% "effective contractual rate" and a 0.2% "maturity premium." A commitment fee of 0.15% per year will also be slapped on any undisbursed loan amount. The loan will be payable in 28 years.

COVID-19 assistance

According to the ADB, “technical and institutional challenges” had resulted in significant losses in real property taxes, with some estimates putting forgone property tax collection as high as P30 billion from 2004 to 2016.

The latest loan comes on top of the $300 million credit already extended under the same program to the Philippines in November last year. At the time, the Local Governance Reform Project was focused on helping LGUs raise their own revenues and lower the cost of doing business.

The fresh credit also adds to ADB’s fund assistance to the Philippines to fight the spread of COVID-19. From lending to purchase personal protective equipment to distribute cash aid to the poor, ADB has lent $2.61 billion to the government as of June 15.

As of end-April, including some of COVID-19 borrowings during that period, state debt incurred from ADB already amounted to $8.41 billion, Treasury data showed.

“The new project will support the implementation of these policy reforms at the national and local levels,” ADB said. — Ian Nicolas Cigaral