‘Unmet economic goals may lead to more taxes’

MANILA, Philippines — Even with its current cold stance toward new tax burdens on Filipino consumers, the government is still expected to pursue taxes that will hit more people if its macroeconomic assumptions are not met.

Economists interviewed by The STAR said the government may be triggered to impose taxes, likely to lean toward consumption-based ones, if economic growth is slower than expected and if targets are not achieved.

Department of Finance Secretary Benjamin Diokno and the economic team have remained cool to additional tax burdens on consumers. The DOF chief has been vocal only about his intent to tax single-use plastics and digital transactions. Instead, tax administration, will be a priority to generate much-need revenue for the government, he said.

But Miguel Chanco of Pantheon Macroeconomics said the trigger would come when growth starts to fall short of the economic team’s “still-rosy expectations on growth.”

Based on the revised assumption of the economic team, gross domestic product will grow at around 6.5 to 7.5 percent this year.

“Remember that they are banking largely on strong growth, coupled with better tax administration, to raise government revenue and, in turn, narrow the fiscal deficit,” Chanco said.

“I think the next few years will be very challenging on the whole, and expectations need both tempering and managing. Economic activity will continue to limp on, due to the deep scars created at the height of the pandemic,” he said.

Research and advocacy group IBON Foundation, for its part, said the government is not necessarily cool to new taxes, but is rather avoiding announcing new ones because the administration has just come in.

IBON executive director Sonny Africa concurred that once the targets for the year are not achieved and the revenue crunch gets worse, then the government may consider imposing new taxes.

“I don’t think they can avoid it, unless they really spend so little but they also want growth. They want growth and they want the credit ratings and the only way to get both is from higher taxes,” Africa said.

He argued that the push to tax single-use plastics and digital transactions are not “trial balloons” or those that just aim to test public opinion about a certain matter.

“I think they’re starting little by little. I think if the economy doesn’t grow as expected, they will start to look at taxes in a much more aggressive way,” Africa said.

“Starting with those two is implying that they may go for more consumption taxes,” he said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, emphasized that there may be a need to raise taxes if the government’s strategy is insufficient.

Ricafort said the government’s first line of defense is the intensified tax revenue collections based on existing tax laws, such as running after tax cheats and the strict enforcement of tax laws.

“If these are proven to be not enough, then there may be a need to raise tax rates especially targeted to those that can afford them, as well as new tax measures based on the principles of fairness and prevent adding undue burden on the vulnerable sectors,” Ricafort said.

He argued that the current elevated inflation is an important consideration before coming up with new taxes, highlighting the importance of a targeted approach on those that can afford higher taxes such as those in the higher income brackets.

Nonetheless, Chanco maintained that it may still be a long way from new taxes to be introduced.

“We reckon that cuts to spending will be considered first before new and higher taxes come to the picture,” he said.

Apart from tax on single-use plastics and digital transaction, the DOF floated the idea of taxing alcopops—flavored beverages with relatively low alcoholic volume—and other vices, as well as imposing carbon tax.

Based on the earlier fiscal consolidation plan proposed by the previous administration, other measures may include deferring the reduction in personal income tax and repealing exemptions on value added tax.

Others were on motor vehicle users’ charge, mandatory casino admissions charge, gaming tax, and expanded petroleum excise tax, among others.