Need for spending reforms stressed

An economist of ANZ raised the need for the Philippine government to implement spending reforms in line with the proposed tax reform and higher infrastructure spending.

In a research note dated May 3, 2017, penned by economist Eugenia Victorino, ANZ Research said the tax reform package was an important factor of ensuring higher revenues to finance the government’s infrastructure program, among others.

It said that delays in the approval of the proposed tax reform bill, House Bill 4774, hinders the maximum output expected from the measure.

The first package of the tax reform program calls for the cut in personal income tax rate, which in turn, is eyed to be offset by higher excise taxes on fuel and vehicles.

It was submitted before Congress in the second half of 2016 and the House of Representatives’ Ways and Means Committee deemed the package approved “in principle” before their break mid-March, pending the studies by a Technical Working Group.
The research note said lawmakers’ decision to take the package as a whole and not piecemeal addressed concerns that only the income tax cuts and not the revenue-enhancing measures would be taken-up.
Finance officials hope that the measure will be approved by July, the target date of implementation.
“If implemented effectively as a package, HB 4774 should be positive for the government’s revenues,” the research note said.
It, on the other hand, said that “while the administration is still hoping to pass the law by early Q3, it may still be amended from its current form by Congress.”
It also cited that the July deadline being considered by the government for the measure’s approval “may be too tight for government agencies to effectively implement the reforms.”
For one, the tax reform proposal calls for fuel markings on petroleum products and getting the marking agent needs to be done immediately, it said.
”In light of the existing issues faced by other government agencies in timely procurement, the planned timeline may prove to be too tight for effective implementation. If the marking agent is not available by the time the tax reform is implemented, revenue leakages on petroleum taxes could results,” it noted.
Other concerns include the procurement of technology for GPS locks, which will be required for cargoes leaving the various ports in the country; and the ability of medium and large enterprises to procure sales machines and accounting systems that would be connected to government’s tax offices.
The study said implementation of infrastructure projects depends on the government’s ability to finance these through higher taxes.
”Yet, history suggests that beyond the issues on financing, administrative challenges have limited the proper implementation of the national budget.”
”Structural issues at the level of national agencies and local government units remain a roadblock to infrastructure projects. Therefore, just as important as the reforms on tax collection, the government should also look at spending reforms,” it added.