New revenue sources mulled amid CREATE losses

MANILA, Philippines — The government may look into new sources of revenues before the end of the Duterte administration to help pay for the debt it incurred due to the coronavirus pandemic, the Department of Finance (DOF) said.

During a Senate hearing on the DOF’s proposed 2021 budget yesterday, Finance Secretary Carlos Dominguez said the government would study new measures to shore up more revenues.

“I think sometime in late 2021 or early 2022 we will start looking at additional revenues to pay for the heavy indebtedness that we are incurring this year,” Dominguez said.

He said this in response to Senate Minority Leader Franklin Drilon, who asked how the government planned to offset the forgone revenues to be incurred due to the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill.

Dominguez, in a text message to reporters, said the government would focus on improving tax administration and passing the remaining tax reform packages in the next few months.

Aside from new sources of revenues, Dominguez told Drilon the long-term benefits to be obtained from the passage of the CREATE bill would help offset the revenues that would be lost with the reduction in corporate income taxes.

“First of all, the proposal to reduce the tax is really part of the stimulus program to stimulate the economy, and really this is trusting the private sector to make the right decisions with that money, trusting them to retain their employees, reinvest in their companies,” Dominguez said.

“We hope and we believe that the economy will be stimulated and additional investments will actually generate more taxes in the long run again. And it will also make us more attractive for foreign investments. So that is part of the recovery plan for the taxes,” he said.

The CREATE bill proposes the immediate cut in the corporate income tax rate from 30 percent to 25 percent this year. The rate would be further cut by one percentage point each year until it reaches 20 percent by 2027.

The DOF estimates that the CREATE bill would cost the government P42 billion in foregone revenues in the second half of the year, alone. Over the next five years, this is expected to reach P625 billion.

Considering its impact on tax collections, the Development Budget Coordination Committee (DBCC) last July 28 adjusted the government’s revenue program for 2020 to P2.52 trillion from the previous P2.61 trillion projection in May.

Due to lower revenues and increased spending for COVID-19 response, the Philippines is expected to incur a budget deficit of P1.82 trillion, which is equivalent to 9.6 percent of the gross domestic product (GDP) this year.

The government is planning to borrow a record P3 trillion this year from domestic and foreign lenders to plug this shortfall.

Dominguez said the government did not resort to tightening its belt even amid the coronavirus pandemic so as to provide stimulus to the economy.

“We have chosen not to do that because we believe that tightening your belt will actually make the situation worse so we have said we will continue our budget spending as part of stimulating the economy and use our good credit rating to fund that,” he said.