IMF to assist Philippines explore carbon tax

MANILA, Philippines — The International Monetary Fund (IMF) is prepared to assist the Philippines in pursuing the imposition of a carbon tax in a bid to generate additional revenues and address environmental concerns.

During the recent International Tax Conference, IMF resident representative to the Philippines Ragnar Gudmundsson said carbon taxation and carbon pricing is an area the government should consider to earn extra revenues.

“Putting in place a carbon tax is easy to implement and administer and the revenue gains can be substantial,” Gudmundsson told reporters.

“The government should demonstrate that additional revenues will be used to promote gains of growth and can be used to provide more support to vulnerable groups,” he said.

Upon his appointment as Finance chief last year, Secretary Benjamin Diokno said carbon tax is one of the measures that the administration may consider “if feasible.”

The DOF is currently undertaking a study on carbon tax in order to assess the current situation in the Philippines, as well as the structure of the economy.

Gudmundsson said the IMF and the government have an ongoing discussion on carbon tax.

“We are happy to support in terms of technical assistance. We are ready to engage with the government and come up with dialogues and policy advice,” Gudmundsson said.

In a report at the start of 2023, the IMF said the Philippines can initially impose a carbon tax of $20 per ton and eventually add $4 in the succeeding years.

Global efforts to slap taxes on carbon remain small. Many countries, including the Philippines, have yet to ride on the carbon tax.

The Asia Pacific region is both highly exposed to climate risk and a major contributor to greenhouse gas emissions, considering that the region is home to the majority of the world’s population and has been the main driver of global growth for the past decades.

But imposing a carbon tax may not always be the best and most preferred choice considering every country’s circumstances just like in the Philippines, where power rates are among the costliest in the region.

Amid the need to raise revenues through additional taxes, other than carbon pricing, Gudmundsson emphasized that the key is to link new measures to public spending.

“That’s how you generate popular support for taxation. As long as the government demonstrates that the additional revenue is used to invest in education, health, and infrastructure, the debate on taxation becomes more acceptable,” Gudmundsson said.

“While you can generate some gains from better tax administration, some reviews of tax policies can help the government achieve significant gains in a short time,” he said.

These include the value added tax (VAT) base broadening via the lifting of exemptions, and additional taxes on sin products, gaming, motorcycles, digital services, mining, and plastic bags, among others.

Diokno earlier said the government targets to generate some P500 billion in fresh revenues starting 2025 through the imposition of additional tax measures over the medium-term.

This, as proposed tax revenue measures under the medium-term fiscal framework such as the Passive Income and Financial Intermediary Taxation Act, VAT on digital service providers, and excise taxes on single-use plastics and pre-mixed alcohol are expected to be implemented starting next year.

On top of that, Diokno said three additional tax reform measures, such as excise tax on sweetened beverages, motor vehicle road user’s tax, and the mining fiscal regime are expected to contribute to state coffers.