MANILA, September 19, 2004 (STAR) By Ted P. Torres - The government’s budget gap could be brought down to P150 billion next year from over P193 billion this year if the minimum goals in the country’s fiscal road map would be implemented, a prominent lawmaker-economist said.

At the sidelines of a forum held at the University of the Philippines School of Economics, Albay Rep. Joey Salceda said the Philippines could meet its fiscal deficit target of P197 billion this year and trim it further next year once several revenue-generating measures have been put in place.

"The 2005 deficit target was already forecast at P184.5 billion but we are fighting for P150 billion under our fiscal road map," Salceda said.

However, he said the lower deficit could be achieved through a combination of new taxes, improved tax collection, and higher interest savings.

For instance, Salceda said Congress would likely pass the proposed indexation of the so-called sin taxes, resulting in revenue earnings of roughly P14 billion from tobacco and liquor products.

"That is substantial as it is a recurring income. But I hope we can pass measures whose effectivity would be felt next year and the coming years such as the excise tax on petroleum products and the two-step expanded value-added tax (EVAT) aside from the sin taxes," he added.

Aside from these measures, other proposals are: the adoption of the gross income tax system over the existing net income; windfall tax on telecommunications income; rationalization of fiscal incentives; and the creation of a performance-driven system for revenue agencies.

Estimates made by the Economic Management Group (EMG) indicate that the government stands to earn at least P20 billion from petroleum taxes and P13.2 billion in the early stages of the two-step EVAT, which would involve raising the present 10 percent VAT to 12 percent and again to 14 percent within a two-year period.

The EMG, composed of representatives from several agencies including the Department of Finance (DOF), the Bangko Sentral ng Pilipinas (BSP), the Department of Trade and Industry (DTI), the Department of Energy (DOE) and Congress, was formed by the Arroyo administration to address the threat of a full-blown fiscal crisis which if uncontrolled, could lead to a more crippling financial crisis.

With the addition of the estimated P14 billion from sin taxes, the EMG expects additional revenues of P47.2 billion covering collections in 2005.

This amount, Salceda said, would be enough to slice the fiscal deficit to around P150 billion next year.

Assuming the three new revenue measures pass through Congress, Salceda said he expects the country’s sovereign rating in the international market to improve. That, in turn, would pave the way for lower interest rates conducive for future borrowings, or possible renegotiations from existing short- to medium term foreign borrowings.

In turn, better terms for foreign borrowings could reduce the amount of debt servicing in the national budget, which should be used in improvements in long-term infrastructure projects to encourage domestic and foreign investments.

But due to the country’s current poor credit rating, the international market slaps a high rate of over 448 basis points (bps) on Philippine borrowings, the highest in the Asean region as compared to Indonesia’s 355 bps, Malaysia’s 103 bps, and Thailand’s 97 bps.

Earlier, Finance Secretary Juanita D. Amatong batted for the inclusion of the targeted tax amnesty "for the final, final, final time," admitting that this is the only way government could accumulate information on the delinquent taxpayers.

"The rationale behind the tax amnesty is to develop a data base," she stressed.

However, based on results of l5 tax amnesty attempts over the last 13 years, government still miserably failed to raise the expected revenues from tax evaders.

Reported by: Sol Jose Vanzi

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