The proposed fiscal consolidation and resource mobilization plan

PCH.VECTOR-FREEPIK
At a press briefing on the Department of Finance (DoF) on May 25, Finance Secretary Carlos Dominguez III mentioned that the implementation of a fiscal consolidation and resource mobilization plan is crucial to “make sure that the federal government can proceed to successfully handle its elevated finances deficit whereas spending on investments in infrastructure, schooling, and healthcare for financial progress and restoration.”
Fiscal consolidation is a purposeful and directed discount of the fiscal deficit, which reached 8.6% in 2021 from the pre-pandemic degree of two% to three%. “Our borrowings had been obligatory. At a time when authorities revenues had been low, they allowed us to buy much-needed vaccines and boosters, improve our healthcare capability, present ayuda (assist) and different types of assist to susceptible sectors, and hold the financial system afloat throughout essentially the most important intervals of the pandemic. We borrowed at the least P3.2 trillion greater than we anticipated because of the pandemic. In December 2019, previous to the pandemic, we anticipated our debt by end-2022 to achieve solely P9.9 trillion. As per the most recent projection by the Development Budget Coordination Committee (DBCC), we now count on our debt to achieve P13.1 trillion. The first principal cost will fall due as early as 2023,” the DoF mentioned on the briefing.
According to the Bureau of the Treasury, to stop having to make use of borrowings to pay P3.2 trillion in incremental debt, we have to elevate at the least P249 billion yearly in incremental revenues for the following 10 years. Otherwise, utilizing borrowings to service previous money owed will result in growing curiosity prices, which is able to eat into fiscal house for socioeconomic packages. For the primary quarter of 2022, our debt-to-GDP stood at 63.5%, larger than the internationally prescribed greatest follow of 60% of GDP.
“The second possibility to chop (authorities) spending by P249-billion debt service per yr is equal to forgoing the next: greater than 140,000 public college lecture rooms; or greater than 8,000 kilometers of paved roads; or free irrigation for greater than 600,000 hectares of land; or virtually 180,000 kilometers of non permanent bridge upgrades; or virtually 14,000 rural well being models; or greater than 110,000 barangay well being stations; or 302 provincial hospitals,” the DoF estimates.
What to do now? The DoF beneath Dominguez presents this detailed fiscal plan to the financial managers within the time period of the proclaimed President Ferdinand R. Marcos, Jr., who’s to be formally inaugurated on June 30 for a time period of six years (till 2028):
PACKAGE 1 (TO BE IMPLEMENTED IN 2023):1. The second tranche discount in Personal Income Tax scheduled in 2023 beneath the Tax Reform for Acceleration and Inclusion (TRAIN) Law is to be deferred to 2026. This will save round P97.7 billion per yr for 3 years till 2026 when fiscal circumstances are hopefully extra permissive to the discount.
2. Limit VAT zero-rating to direct exports, and repeal VAT exemptions aside from schooling, agricultural merchandise, well being, monetary sector, and uncooked meals. This measure is estimated to generate a mean of P142.5 billion in extra revenues yearly.
Consider repealing the quick expending of enter VAT on capital items beneath TRAIN Law and reimposing the 60-month restrict to credit score enter VAT on capital items.
3. Impose VAT on digital service suppliers to cowl on-line commercial providers, digital providers, and provide of different digital and on-line providers, with a mean annual income impression of P13.2 billion. (There is a pending House invoice on this.)
4. Reform the Motor Vehicle Users’ Charge (MVUC) to impose a single and unitary price primarily based on the gross car weight of all motor automobiles. This measure alone is estimated to generate a mean of P38.3 billion yearly.
Repeal the excise tax exemption of pickups and impose an excise tax on bikes. The repeal of the excise tax exemption on pickups will lead to P19.2 billion on common in annual incremental revenues.
5. Establish a single and rationalized fiscal regime relevant to all mining agreements. Consider imposing an export tax on mineral ore to encourage home value-added on mineral merchandise. All that is estimated to generate P11.4 billion on common per yr.
6. Impose extra taxes and fees on gaming: first, a compulsory admissions cost at a flat price of P3,500 might be imposed in casinos. Second is on Philippine Amusement and Gaming Corp. (Pagcor)-licensed digital betting actions reminiscent of e-bingo and digital sports activities betting, which do not need a separate tax but. Impose a 5% tax on gross gaming receipts, or the gross bets much less payouts. Together, the preliminary income impression of the proposed taxes and fees on gaming is estimated to be round P13.1 billion on common yearly.
7. Impose an excise tax on single-use plastic baggage, like P20 per kilogram — estimated to generate round P1 billion incremental tax revenues yearly. (This measure has been accredited by the House of Representatives and is on the Senate Committee on Ways and Means.)
8. Impose excise taxes on luxurious items, increasing the tax on non-essential items to incorporate all watches, cellphones, classic vehicles, and semi-essential items, amongst others. (This measure has an current invoice.)
The outgoing DoF additionally has two packages of the Comprehensive Tax Reform Program pending within the Senate.
9. The first is the Passive Income and Financial Intermediary Taxation Act, which goals to simplify and harmonize the taxation of passive revenue, monetary providers, and transactions.
10. The second is the Real Property Valuation and Assessment Reform Act, which goals to undertake internationally accepted valuation requirements and professionalize actual property valuation.
Overall, Package 1 will generate a mean of P247.8 billion per yr for measures with prepared estimates.
PACKAGE 2 HAS AN ESTIMATED ANNUAL REVENUE IMPACT OF AROUND P126.8 BILLION.1. Reform well being taxes, significantly for alcopops, cigarettes, e-cigarettes, sweetened drinks, and non-nutritious meals. These health-related tax measures have a mean annual income impression of P91.4 billion.
2. Increase petroleum excise taxes by P1 per unit of taxation (liter, kilogram, or metric ton) for at least three years and index the charges thereafter.
3. Increase and index excise tax charges on each home and imported coal. This is estimated to generate a mean of P35.4 billion in extra revenues per yr.
4. Study the tax remedy of cryptocurrency transactions and the prevention of its use for tax evasion.
5. Firm up proposed administrative issuance on switch pricing, or the shifting of income and bills as a scheme to scale back tax obligations, to strengthen the capability of the Bureau of Internal Revenue (BIR) to carry out switch pricing audits.
PACKAGE 3 IS THE PROPOSED MEASURE ON CARBON TAXATION, DEFERRED TO 2025; THIS MEASURE IS CURRENTLY UNDERGOING FURTHER STUDY.All in all, the typical annual income impression for all proposals with prepared estimates stands at round P349.3 billion, earlier than the earmarking provisions for sure income segments beneath the legislation. These deductions whole a mean of P41.6 billion per yr. The stability then obtainable for the National Government quantities to a mean of about P307.7 billion extra collections per yr, to comfortably pay for above P249-billion debt service estimated by the DBCC. “This new collection of measures goals to reverse in a span of 10 years the extra P3.2-trillion debt incurred by the Philippine authorities because of the COVID-19 pandemic,” the DoF says.
The DoF provides: “We suggest pursuing these packages along with the next reforms:
“First, there have to be additional enhancements to tax administration and enforcement. These enhancements embrace 1.) capturing transactions that migrated to the digital house, 2.) implementing the tax administration reforms within the enacted packages of the Comprehensive Tax Reform Program, and 3.) sustaining the digitalization efforts of the BIR and BoC (Bureau of Customs).
“Second, we suggest authorities reengineering or rightsizing to regulate personnel providers spending, which has reached virtually 30% of National Government expenditures; and,
“Third, we suggest pursuing the Military and Uniformed Personnel (MUP) pension reform to make sure that the pension system is sustainably funded, partly by means of obligatory contributions. We additionally emphasize that regardless of the proposed reform, the MUP pension system will stay essentially the most beneficiant pension system within the public sector.
“Lastly, we suggest pursuing the Capital Market Development Act to construct a sustainable company pension system that may guarantee our staff can rely upon ample advantages for a snug and dignified retirement, and not need to rely solely on the strained sources of the Social Security System.”
Finally, a grave warning from the outgoing DoF:
“If we don’t pursue fiscal consolidation and resource mobilization, there are critical and spiraling penalties to our fiscal and financial well being. If no reforms are launched or the reforms are diluted, there might be two situations in the end resulting in the identical end result: a fiscal and financial disaster, because of larger debt, decrease socioeconomic spending, and fewer investments.”
Mr. Dominguez and his staff of financial managers have to be thanked and recommended for his or her candid and unabashed acknowledgement of our fearsome fiscal deficit attributed to the greater than two years of the COVID pandemic. The incoming financial managers beneath the newly elected chief govt ought to profit a lot from the very detailed fiscal consolidation and resource allocation plan with its much more detailed anticipated outcomes of incremental revenues, if solely to set some impersonal, indifferent benchmarks for self-evaluation of their efforts within the still-unstable native and world political, financial and well being state of affairs.
But for an peculiar reader, the tangled knot of detailed prescriptions and expectations in a important plan that have to be adopted — “or else” — can solely convey bewildering helplessness. Or maybe stoic cynicism. How can we rely on “at the least P249 billion yearly in incremental revenues for the following 10 years” to cowl the incremental COVID debt and contribute to the rising whole debt service on the current degree of debt “which can nonetheless go as much as P13.1 trillion by year-end 2022,” in line with the DBCC?
Thank you for saying it because it actually is, Secretary Dominguez.
 
Amelia H. C. Ylagan is a health care provider of Business Administration from the University of the Philippines.
[email protected]

https://www.bworldonline.com/opinion/2022/06/05/452850/the-proposed-fiscal-consolidation-and-resource-mobilization-plan/

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