The country’s astronomical debts have put pressure on the Department of Finance, resulting in a proposition to reduce tax exemptions like deductibles while expanding the Value-Added Tax (VAT) coverage. These are only a few of the measures they came up with to charge more in tax dues to address the country’s debt.
Now the Presumptive President “Bongbong” Marcos Jr. is set to take over the reins of government from President Rodrigo Duterte, the DOF stated that these new tax strategies are very critical. The DOF’s “Proposed Fiscal Consolidation and Resource Mobilization Plan” has a primary objective of generating P349.3 billion in new revenues for the period of 2023 to 2027.
To date, the Philippines has hit a high sovereign debt record, clocking in at P12.68 trillion this March of 2022. A big part of the new debt comes from expenses incurred by the government due to the coronavirus pandemic. The country borrowed an additional P3.2 trillion to address the health crisis, which includes the purchase of medical equipment, protective equipment, and vaccines. This is on top of its already programmed P9.9 trillion debt.
Unfortunately, this ballooning debt puts the Philippines at risk. The current debt-to-GDP or gross domestic product ratio is now at 63.5%. The DOF said this is alarmingly high since the international standards stipulate that the best ratio should not be greater than 60%.
The DOF’s proposed plan hopes to address this massive debt. A part of the plan includes levying taxes on motorcycles, single-use plastics, carbon, and cryptocurrencies. By increasing tax collections, Finance Secretary Carlos Dominguez III said that the government can continue to invest in socioeconomic programs for the citizens. Apart from that, imposing new tax rules can help the country grow out of debt while improving international credit ratings.
Without these measures, the Filipinos will suffer because the government will be forced to cut spending on various programs or borrow more, which is a slippery slope that could impact interest payments and eventually force budget cuts. Ultimately, this will end up stifling economic growth.
Thus, the DOF hopes to raise collections to at least P249 billion annually in incremental revenues for the next decade. The new proposed tax measures could potentially yield an average of P284 billion annually for the national government.
With businesses and individual taxpayers losing their exemptions and incentives, it is foreseeable that they will lose income. As a result, businesses could hike up prices of goods and services to compensate for the loss in profits. Meanwhile, individual employees may be forced to penny-pinch in these hard times. Many criticize the new plan as anti-poor and the middle class because the majority of the tax burdens will be felt by them.
Some factions propose that the new tax proposal ought to target the wealthy instead of the poor and middle class. For instance, tax POGOs or offshore gaming and go after their billions in accrued taxes. Similarly, placing a wealth tax of 1% on every million earned could also help alleviate budget burdens without adversely impacting those who have a meager budget with the DOF’s proposed new tax scheme.
Socioeconomic Planning Secretary Carl Chua does not recommend changing the current tax system. Instead, he recommends that the forthcoming Marcos Jr. administration must exercise prudence and live within the current budget of P5.268 trillion in 2023.
