MANILA, February 4, 2005 (STAR) By Des Ferriols  -  The Arroyo administration expects at least P124.7 billion in incremental revenues this year from new tax measures and other tariff adjustments that will take effect this year.

In a report presented before the year-end economic briefing yesterday, the Department of Finance (DOF) said the new revenue measures to take effect this year could bring in as much as P161.3 billion.

Incoming Finance Secretary Cesar Purisima said the full implementation of these measures would help ease the government’s tight budget and debt problem.

According to Purisima, the two percentage-point increase in the value-added tax rate is expected to increase VAT collections by P35 to P50 billion on the first year and the removal of VAT exemptions would add another P17 to P25 billion.

He said the rationalization of fiscal incentives would generate about P3.7 to P5.3 billion once the incentives have been trimmed to what he qualified as "footloose industries."

According to Purisima, the measures passed in 2004 would generate P57 to P65 billion in savings and recovered revenues. He said about P32 to P35 billion is expected from the increase in power rates and P15 billion is expected from the newly-passed excise tax rate on alcohol and tobacco.

On the other hand, another P5 billion each will come from the lifting of the tariff exemption of oil and the lateral attrition law, respectively.

"Altogether, the 2004 and 2005 measures would generate revenues equivalent to 2.34 percent to 3.003 percent," Purisima said.

"Our revenue take as a percentage of gross domestic product is behind our peers in the region," Purisima said, adding that the pictures look even worse when comparative debt burden and international reserves were considered.

The country’s revenues amount to about 4.7 percent of GDP compared to 6.7 percent of Thailand and 7.1 percent of Vietnam. The proportion is higher than Indonesia which collects about 4.1 percent of GDP.

However, Indonesia’s international reserves in 2003 was $36.2 billion while the Philippines’ reserves was at $13.5 billion. Thailand’s reserves amounted to P42.1 in the same year.

Moreover, Thailand’s external debt represent about 16.6 percent of GDP while Indonesia’s was at 19.1 percent of GDP and Vietnam’s was at 22.7 percent of their GDP. The Philippines’ external debt, in contrast, was at a whopping 76.1 percent of GDP.

"The very idea that interest payments account for more than one-third of the government budget means that we are spending far less than we need to spend on capital outlay," Purisima said. "It also makes us vulnerable to currency depreciation, interest rate hikes and fortuitous events."

Interest payments, Purisima said, have increased steadily from 19.2 percent in 1996 to 33.3 percent this year while capital outlay plummeted from 14.1 percent in 1996 to about 10 percent this year.

Reported by: Sol Jose Vanzi

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