Improved collections boost tax effort in Q1

MANILA, Philippines — Tax collections had a bigger share in economic output in the first quarter  as collections recovered, the Department of Finance (DOF) said yesterday.

In an economic bulletin, Finance Undersecretary and chief economist Gil Beltran said the share of tax collections to gross domestic product or  tax effort    rose to 14.41 percent in the first quarter from 13.96 percent in the same period last year, the highest first quarter level on record, on increased collections by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC).

Tax effort by the BIR, the largest tax-collecting agency, rose to 10.81 percent in the first quarter  against 10.54 percent in the same quarter last year, while that of the  BOC rose to 3.43 percent from 3.27 percent in the previous year.

The recovery in the tax effort tempered the drop in revenue effort to 16.03 percent in the first quarter from 17.16 percent last year.

“The fiscal reforms adopted by the Duterte administration boosted the tax effort to its highest first quarter level in history. These reforms made the country one of the few emerging economies to maintain investment grade rating and avoid a credit rating downgrade which would have pushed up interest rates and delayed nascent economic recovery,” said Beltran.

He urged the passage of the remaining tax reform packages pending in Congress to sustain revenue generation gains.

“The country should continue to adopt fiscal reforms, particularly tax reforms still pending in Congress, to sustain these fiscal gains. 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,”  Beltran said.

He was referring to the last two packages of the tax reform program that introduces changes to real property and valuation and harmonizes taxes on passive income and other financial transactions.

Revenues generated by the national government fell by 8.7 percent to P696.5 billion in the first quarter from P763.1 billion last year as non-tax revenues were halved.

These included tax collections as well as non-tax revenues such as collections from dividends, fees, privatization proceeds  and Treasury income.

Tax revenues, meanwhile, rose by 0.9 percent to P626 billion from P620.7 billion on stronger collection from main agencies and other offices.

As the government widens the coverage of pandemic-response programs at the start of the year, expenditures jumped by 19.9 percent in the first quarter to P1.017 trillion from P849.2 billion in the comparative period last year.

The inter-agency Development Budget Coordination Committee (DBCC) has set the revenue program for this year at P2.88 trillion.

With more economic activities expected to resume in the next few years, revenue collections are expected to rise to P3.29 trillion next year, P3.59 trillion in 2023 and P4 trillion in 2024.

Last year, the national government generated revenues of P2.84 trillion, largely in line with the full-year program of P2.85 trillion set by the DBCC.