Fiscal policy of the Philippines From Wikipedia, Wikipedia, the free encycl encyclopedi opedia a Fiscal policy policy refers to the "measures employed by governments to stabilize stab ilize the econ economy, omy, specifically specifically by mani manipulat pulating ing the leve levels ls and allocations of taxes and government expenditures. Fiscal measures are fre freque quentl ntly y us used ed in tan tandem dem wit with h mon moneta etary ry pol policy icy to ach achiev ieve e Philippines, th certain cert ain goals goals." ."[1] In th the e Philippines, this is is ch char arac acte teri rize zed d by continuous and increasing levels of debt and budget deficits, though A comparative comparative graph graph of Revenue Revenue and Tax Effort from 2001-2 2001-2010 010[3] there have been improvements improvements in the last few years. [2] The Philippine government’s main source of revenue are taxes taxes,, with some non-tax revenue also being collected. To finance fiscal deficit and deb debt, t, th the e Phi Philip lippin pines es rel relies ies on bo both th dom domest estic ic and ext extern ernal al sources. Fiscal pol Fiscal policy icy dur during ing th the e Marcos administr administratio ation n was prim primarily arily focused on indirect tax collection and on government spending on economic services and infrastructure development. The first Aquino administration inheri inherited ted a lar large ge fis fiscal cal def defici icitt fro from m th the e pre previ vious ous administration, but managed to reduce fiscal imbalance and improve tax col collec lecti tion on th throu rough gh th the e int introd roduct uction ion of th the e 198 1986 6 Tax Ref Refor orm m Program and the va value added tax. The Ramos administration experien experienced ced budge budgett surp surpluses luses due to subs substanti tantial al gains from the massive sale of government assets and strong foreign investment in its early years. However, the implementation of the 1997 19 97 Co Comp mpre rehe hens nsiv ive e Ta Tax x Re Refo form rm Pr Prog ogra ram m an and d th the e on onse sett of the Asian the Asian financial crisis resulted crisis resulted to a deteriorating fiscal position in the th e su succ ccee eedi ding ng ye year arss an and d ad admi mini nist stra rati tion ons. s. Th The e Estrada administration faced a large fiscal deficit due to the decrease in tax effortt and the repa effor repaymen ymentt of the Ramos administrati administration’s on’s debt to contracto contr actors rs and suppl suppliers iers.. Durin During g the Arroyo administrat administration ion,, th the e Expanded Value Added Tax Law was enacted, national debt-to-GDP ratio peaked, and underspending on public infrastructure and other capital capit al expen expenditu ditures res was obse observed rved.. Contents [hide hide]]
A comparative graph of Tax and Non-Tax Revenue contribution from 2001-2010[4] The Phili Philippine ppine gover governmen nmentt gener generates ates reve revenues nues main mainly ly thro through ugh personal and income tax collection, but a small portion of non-tax revenue reve nue is also collected collected thr through ough fees and licen licenses, ses, privatizatio privatization n proceeds and income from other government operations and stateowned enterprises. Tax Revenue Revenue[[edit ] Tax collections comprise the biggest percentage of revenue collected. Its bigg biggest est cont contribu ributor tor is the Bureau Bureau of Inte Internal rnal Revenue (BIR), followed by the Bureau of Customs (BOC). Tax effort as a percentage of GDP has aver averaged aged at roughly roughly 13% for the years years 2001-2010. 2001-2010.[5] Income Income Taxes Taxes[edit ]
o
o
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1 Reve Revenues nues and Fundi Funding ng 1.1 Tax Revenue 1.1.1 Income Taxes 1.1.2 E-VAT 1.1.3 1.1. 3 Tari Tariffs ffs and Duti Duties es 1.2 Non-T Non-Tax ax Reve Revenue nue 1.2.1 The Bureau of Treasury 1.2.2 Privatizati Privatization on 1.2.3 PAGCOR 2 Spending, Debt, and Financing 2.1 Government Spending and Fiscal Imbalance 2.2 Finan Financing cing and Debt 3 History of Philippine Fiscal Policy 3.1 Marcos Administrati Administration on (1981-1985) 3.2 Aquino Administrati Administration on (1986-1992) 3.3 Ramos Administrat Administration ion (1993-1998) 3.4 Estrada Administrat Administration ion (1999-2000) 3.5 Arroyo Administrati Administration on (2002-2009)
4 References
5 Exte External rnal links
Income tax is a tax on a person's income, wages, profits arising from property, practice of profession, conduct of trade or business or any stipulated in the National Internal Revenue Code of 1997 (NIRC), less any dedu deductio ctions ns grant granted. ed.[6] In Inco come me ta tax x in th the e Ph Phil ilip ippi pine ness is a progressive tax, as people with higher incomes pay more than people with lower lower incom incomes. es. Pers Personal onal income income tax tax rates vary as such:[7]
Annual Taxable Income
Income Tax Rate
Less than ₱10,000
5%
Over ₱10,0 10,000 00 but but not not over over ₱30,000
500 ₱500
Over ₱30,0 30,000 00 but but not not over over ₱70,000
2,500 0 ₱2,50
Over ₱70,0 70,000 00 but but not not over over ₱140,000
₱8,50 8,500 0
+ 10% 10% of the the exce excess ss over over ₱10,000
+ 15% 15% of the the exce excess ss over over ₱30,000
Revenues Revenues and Funding Funding[[edit ] + 20% 20% of the the exce excess ss over over
₱70,000
Over ₱140,000 but not over ₱250,000
revenue by issuing, servicing and redeeming government securities, and by controlling the Securities Stabilization Fund (which increases ₱22,500 + 25% of the excess over the liquidity and stabilizes the value of government securities [14]) ₱140,000 through the purchase and sale of government bills and bonds.[15] Privatization[edit ]
Over ₱250,000 but not over ₱500,000
Over ₱500,000
+ 30% of the excess over Privatization in the Philippines occurred in three waves: The first wave in 1986-1987, the second during 1990 and the third stage, ₱250,000 which is presently taking place. [16] The government’s Privatization Program is handled by the inter-agency Privatization Council and the Privatization and Management Office, a sub-branch of the [17] ₱125,000 + 32% of the excess over Department of Finance. ₱500,000 PAGCOR[edit ] ₱50,000
The Philippine Amusement and Gaming Corporation (PAGCOR) is a government-owned corporation established in 1977 to stop illegal casino operations. PAGCOR is mandated to regulate and license gambling (particularly in casinos), generate revenues for the In 2008, Republic Act No. 9504 (passed by then-President Gloria Philippine government through its own casinos and promote Macapagal-Arroyo) exempted minimum wage earners from paying tourism in the country. [18] income taxes. [9] The top rate was 35% until 1997, 34% in 1998, 33% in 1999, and 32% since 2000.[7][8]
E-VAT[edit ]
Spending, Debt, and Financing[edit ]
The Expanded Value Added Tax (E-VAT), is a form of sales tax that is imposed on the sale of goods and services and on the import of goods into the Philippines. It is a consumption tax (those who consume more are taxed more) and an indirect tax, which can be passed on to the buyer. The current E-VAT rate is 12% of transactions. Some items which are subject to E-VAT include petroleum, natural gases, indigenous fuels, coals, medical services, legal services, electricity, non-basic commodities, clothing, non-food agricultural products, domestic travel by air and sea. [10] The E-VAT has exemptions which include basic commodities and socially sensitive products. Exemptible from the E-VAT are: [11] A comparative graph of National Revenues and Expenditures from [5] 1. Agricultural and marine products in their original state (e.g. 2001-2010 vegetables, meat, fish, fruits, eggs and rice), including those which have undergone preservation processes (e.g. freezing, drying, salting, broiling, roasting, smoking or stripping); 2. Educational services rendered by both public and private educational institutions; 3. Books, newspapers and magazines; 4. Lease of residential houses not exceeding ₱10,000 monthly; 5. Sale of low-cost house and lot not exceeding ₱2.5 million 6. Sales of persons and establishments earning not more than ₱1.5 million annually. A comparative graph of Domestic and External Sources of Financing Tariffs and Duties[edit ] from 2001-2010[5] Second to the BIR in terms of revenue collection, the Bureau of Customs (BOC) imposes tariffs and duties on all items imported into the Philippines. According to Executive Order 206, returning residents, Overseas Filipino Workers (OFW’s) and former Filipino citizens are exempted from paying duties and tariffs.[12] Non-Tax Revenue[edit ] Non-tax revenue makes up a small percentage of total government revenue (roughly less than 20%), and consists of collections of fees and licenses, privatization proceeds and income from other state A comparative graph of Total National Debt from 2001-2010 [19] enterprises. [13] The Bureau of Treasury[edit ]
Government Spending and Fiscal Imbalance[edit ]
The Bureau of Treasury (BTr) manages the finances of the In 2010, the Philippine Government spent a total of ₱ 1.5 trillion and government, by attempting to maximize revenue collected and earned a total of ₱1.2 trillion from tax and non-tax revenues, thus minimize spending. The bulk of non-tax revenues comes from the resulting to a total deficit of ₱314.5 billion.[5] BTr’s income. Under Executive Order No.449, the BTr collects
Despite the national deficit of the Philippines, the Department of Financereported an average of ₱29.6 billion in Local Government Unit (LGU) surplus, which is mostly due to an improved LGU financial monitoring system which the government implemented in the recent years. Efforts of the monitoring system include "debt monitoring and creditworthiness monitoring system, effective mobilization of second generation funds (SGF) to promote LGU development, and the implementation of a Land Administration and Management Project (LAMP2) which received a 'very good' rating from the World Bank (WB) and Australian Agency for International Development (AusAid)."[20]
4. 5. 6.
Bond Exchanges Promissory Notes Term Deposits
In 2010, the total outstanding debt of the Philippines reached ₱ 4.718 trillion: ₱2.718 trillion from outstanding domestic sources and ₱2 trillion from foreign sources. According to the Department of Finance, the country has recently reduced dependency on external sources to minimize the risks caused by changes in the global exchange rates. Efforts to reduce national debt include increasing tax efforts and decreasing government spending. The Philippine government has also entered talks with other economic entities, like the ASEAN Finance Ministers Meeting (AFMM), ASEAN+3 Finance Ministers Meeting (AFMM+3), Asia-Pacific Economic Cooperation (APEC), and ASEAN Single-Window Technical Working Group (ASW-TWG), in order to strengthen the countries' and the region's debt management efforts*.[20]
Microfinance management in the Philippines is improving substantially. In 2009, the Economist Intelligence Unit "recognized the Philippines as the best in the world in terms of its microfinance regulatory framework." The DOF-National Credit Council (DOF-NCC) focused on improving the state of local cooperatives by developing a supervision and examination manual, launching advocacies for these cooperatives, and pushing for the Philippine Cooperative Code of History of Philippine Fiscal Policy[edit ] 2008. A standardized national strategy for microinsurance and the Marcos Administration (1981-1985)[edit ] provisions of grants and technical assistance were formulated. [20]
The tax system under the Marcos administration was generally regressive as it was heavily dependent on indirect taxes. Indirect Aside from Tax and Non-Tax Revenues, the government makes use of taxes and international trade taxes accounted for about 35% of total other sources of financing to support its expenses. In 2010, the tax revenue, while direct taxes only accounted for 25%. Government government borrowed a total net of ₱351.646 billion for financing: [21] expenditure for economic services peaked during this period, focusing mainly on infrastructure development, with about 33% of the budget spent on capital outlays. In response to the higher global Domestic External interest rates and to the depreciation of the peso, the government Sources Sources became increasingly reliant on domestic financing to finance fiscal deficit. The government also started liberalizing tariff policy during this period by enacting the initial Tariff Reform Program, which narrowed the tariff structure from a range of 100%-0% to 50%-10%, ₱489.844 ₱257.357 and the Import Liberalization Program, which aimed at reducing or Gross Financing billion billion eliminating tariffs and realigning indirect taxes. [22][23][24] Financing and Debt [edit ]
Aquino Administration (1986-1992)[edit ] Faced with problems inherited from the previous administration, the most important of which being the large fiscal deficit heightened by billion billion the low tax effort due to a weak tax system, Aquino enacted the 1986 Tax Reform Program (TRP). The aim of the TRP was to “simplify the tax system, make revenues more responsive to economic activity, promote horizontal equity and promote growth by correcting ₱218.598 ₱133.048 Net Financing existing taxes that impaired business incentives”. One of the major billion billion reforms enacted under the program was the introduction of the Value Added Tax (VAT), which was set at 10%. The 1986 tax reform program resulted in reduced fiscal imbalance and higher tax effort in the succeeding years, peaking in 1997, before the enactment of the 351.646 Total Financing 1997 Comprehensive Tax Reform Program (CTRP). The share of nonbillion tax revenues during this period soared due to the sale of sequestered assets of President Marcos and his cronies (totalling to about ₱20 External Sources of Financing are:[21] billion), the initial efforts to deregulate the oil industry and thrust towards the privatization of state enterprises. Public debt servicing 1. Program and Project Loans - the government offers project and interest payments as a percent of the budget peaked during this loans to external bodies and uses the proceeds to fund period as government focused on making up for the debt incurred by domestic projects like infrastructure, agriculture, and the Marcos administration. Another important reform enacted during the Aquino administration was the passage of the 1991 Local other government projects.[20] Government Code which enabled fiscal decentralization. This 2. Credit Facility Loans increased the taxing and spending powers to local governments in 3. Zero-coupon Treasury Bills effect increasing local government resources.[22][24] 4. Global Bonds Ramos Administration (1993-1998)[edit ] 5. Foreign Currencies Less: Repayments/Amortization
₱271.246
Domestic Sources of Financing are[21] 1. 2. 3.
Treasury Bonds Facility loans Treasury Bills
₱124.309
The Ramos administration had budget surpluses for four of its six years in power. The government benefited from the massive sale of government assets (totalling to about ₱ 70 billion, the biggest among the administrations) and continued to benefit from the 1986 TRP. The administration invested heavily on the power sector as the
country was beset by power outages. The government utilized its emergency powers to fast-track the construction of power projects and established contracts with independent power plants. This period also experienced a real estate boom and strong foreign direct investment to the country during the early years of the administration, in effect overvaluing the peso. However, with the onset of the Asian financial crisis, the peso depreciated by almost 40%. The Ramos administration relied heavily on external borrowing to finance its fiscal deficit but quickly switched to domestic dependence on the onset of the Asian financial crisis. The administration has been accused of resorting to “budget trickery” during the crisis: balancing assets through the sales of assets, building up accounts payable and delaying payment of government premium to social security holders. In 1997, the Comprehensive Tax Reform Program (CTRP) was enacted. Republic Act (RA) 8184 and RA 8240, which were implemented under the program, were estimated to yield additional taxes of around ₱ 7.4 billion; however, a decline in tax effort during the succeeding periods was observed after the CTRP was implemented. This was attributed to the unfavorable economic climate created by the Asian fiscal crisis and the poor implementation of the provisions of the reform. A sharp decrease in international trade tax contribution to GDP was also observed as a consequence of the trade liberalization and globalization efforts in the 1990s, more prominently, the establishment of the ASEAN Free Trade Agreement (AFTA) and membership to the World Trade Organization (WTO) and the AsiaPacific Economic Cooperation (APEC). The Ramos administration also provided additional incentives to export-oriented firms, the most prominent among these being RA 7227 which was instrumental to the success of the Subic Bay Freeport Zone. [22][23] Estrada Administration (1999-2000)[edit ] President Estrada, who assumed office at the height of the Asian financial crisis, faced a large fiscal deficit, which was mainly attributed to the sharp deterioration in the tax effort (as a result of the 1997 CTRP: increased tax incentives, narrowing of VAT base and lowering of tariff walls) and higher interest payments given the sharp depreciation of the peso during the crisis. The administration also had to pay P60 billion worth of accounts payables left unpaid by the Ramos administration to contractors and suppliers. Public spending focused on social services, with spending on basic education reaching its peak. To finance the fiscal deficit, Estrada created a balance between domestic and foreign borrowing. [22][23] Arroyo Administration (2002-2009)[edit ] The Arroyo administration in 2001 inherited a poor fiscal position that was attributed to weakening tax effort (still resulting from the 1997 CTRP) and rising debt servicing costs (due to peso depreciation). Large fiscal deficits and heavy losses for monitored government corporations lingered from 2001-2004 as her caretaker administration struggled to reverse downward trends. Following her election in 2004, the national debt-to-GDP ratio reached a high of 79% in that year, before dropping every year thereafter to 57.5% by 2009, her last full year in office. More roads and bridges were built during the Arroyo administration than the previous three administrations combined. Educational spending likewise increased from only Ps 9.3 Billion in 2001 to Ps 22.7 Billion by 2009. The cost of medicines was brought down by as much as 50% as a result of the Cheaper Medicines Act and the opening of Botikas ng Bayan and Botikas ng Barangay, while the ground-breaking conditional cash transfers (CCT) program was adapted from Latin America to stimulate positive behaviors among the poor. As a result, the Arroyo administration contributed to ever-declining levels in self-rated poverty, from a high of 68% at the start of the Ramons administration, to around 50% at the end of the Arroyo one. Much of the fuel for government activism came from an expanded valueadded tax (from 10% to 12%) in 2005 (see final reports of various
Cabinet agencies concerned), which with other fiscal reforms paved the way for successive sovereign credit rating upgrades by the time Arroyo stepped down in June 2010. These fiscal reforms complemented conservative liquidity management by the Central Bank, allowing the peso, for the first time ever, to close even stronger at the end of a presidential term than at the start
