As the cabinet of Pres. Aquino lists efforts to address the country’s budget deficit, research group IBON urges the new administration to look into alternative fiscal solutions instead of resorting to measures that have failed in the past.

As the cabinet of Pres. Aquino lists efforts to address the country’s budget deficit, research group IBON urges the new administration to look into alternative fiscal solutions instead of resorting to measures that have failed in the past.

Some of these solutions include implementing increases in tariffs and withdrawing huge incentives given to foreign investors. IBON estimates that government loses around P200 billion in potential revenues each year because of tariff reduction; for instance, the revenues lost to the Japan Economic Partnership Agreement (JPEPA), which was ratified in 2008, were estimated at P12.5 billion in 2009.

According to IBON, government can raise its customs collections by increasing the tariff levels of agricultural and industrial imports that have been liberalized. Since 1996 (after World Trade Organization agreements came into force), the Bureau of Customs (BOC) tax to GDP (gross domestic product) ratio has decreased from 4.8% to 2.9% in 2009.

Meanwhile, the fiscal incentives given to foreign investors have led to huge tax losses– government estimates revenue losses from fiscal incentives at around P43 billion. Moreover, restoring the corporate income tax to 35%, before it was reduced to 30% in 2008, will also contribute to additional revenues for the government. A study estimates that revenues lost from the corporate tax cut amounts to almost P16 billion.

IBON added that another doable measure to improve the country’s revenues is to plug the leakages in the tax collection system. Estimates from the DOF show that uncollected revenues from interest income tax, documentary stamp tax, gross receipt tax, excise tax on tobacco products, etc. reach more than P170 billion.

According to IBON, if government recovers these potential revenues, it would translate to around P429 billion—more than enough to cover the government deficit target of P300 billion in 2010.

The administration should also review the government’s debt management, and pursue effective anti-smuggling and anti-corruption efforts to address the country’s fiscal problems.

The research group urges the Aquino administration to at least study these short-term solutions so that the public would not be burdened by measures being proposed such as strengthening the attrition law, restructuring excise tax, and other tax schemes. (end)