The Asian Development Bank (ADB) has approved a policy-based loan of $400 million to support the Philippines in enhancing its tax administration and increasing domestic resource mobilization. This move is part of a broader strategy to reform the country’s tax system, aiming to boost compliance, reduce tax evasion, and expand revenues, particularly from sectors that affect the environment.
The loan is integral to the Domestic Resource Mobilization (DRM) Subprogram 1, which aligns with the Philippines’ mid-term fiscal strategy and seeks to address inconsistencies within the current tax policy framework. The DRM reforms are expected to have wide-ranging positive effects, including promoting inclusivity, fostering good governance, stimulating investment, creating jobs, reducing inequality, and mitigating climate change.
The loan also targets an ambitious annual growth of 6.5-8% for 2024-2028, as per Fitch’s BMI Country Risk, despite skepticism about this challenging target. These goals are part of the Philippines’ fiscal enhancement and post-pandemic recovery efforts.
ADB’s senior economist Aekapol Chongvilaivan highlighted that these reforms are not only about expanding revenue but also about securing sustainable financing for the nation’s goals outlined in the Philippine Development Plan (PDP) 2023-2028. One of the key targets under this plan is to increase the country’s tax-to-GDP ratio from 15% in 2020 to 15.9% by 2026.
In tandem with this financial support, the government is advancing digital transformation within the Bureau of Internal Revenue. This includes updating taxpayer services such as online registration, filing, and payment systems, with an aim to raise the actual tax revenues to at least 85% of their potential by 2026. Earlier in November, digitalization programs were implemented by the Development Budget Coordination Committee (DBCC) for corruption elimination, transparency enhancement, and tax payment ease.
Additionally, the Philippines’ participation in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting demonstrates its commitment to adhering to global tax standards and implementing progressive reforms. The ADB continues to back these efforts by providing consulting services and technical advice on comprehensive tax reform programs and real property valuation and assessment reforms.
On October 26, the Monetary Board raised the Bangko Sentral ng Pilipinas policy rate by 0.25 point to 6.5%, with another increase expected due to upward pressure on prices. However, an impending economic slowdown in China and a US recession could dampen demand for Philippine goods and services in the near future. Despite these challenges, all these efforts are aligned with the Medium-Term Fiscal Framework to keep the economy among the best-performing in Asia.
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