IMF  WANTS  RP  TO  SET  DEFICIT  TARGET  AT  P128 BILLION

MANILA
, March 4, 2005
 (STAR) By Des Ferriols  - Pushing for a more aggressive and front-loaded deficit reduction program, the International Monetary Fund (IMF) wants the government to bring its deficit down to as low as P128 billion this year.

The Arroyo administration and the IMF have been at loggerheads over the 2005 deficit target, with the IMF recommending a sharp reduction to 2.5 percent of gross domestic product (GDP).

The Arroyo administration, on the other hand, scheduled a gradual reduction from 3.8 percent of GDP in 2004 to 3.5 percent of GDP this year, equivalent to a deficit level of about P180 billion.

Finance sources said the Development Budget Coordination Committee (DBCC) agreed with the IMF’s recommendation to front-load its revenue measures to drastically reduce the deficit.

However, Finance officials said the IMF may have a different appreciation of how much the Congress could do within a time period in order to address the budget crisis and its inevitable impact on the country’s debt levels.

"We are only more pragmatic about the extent of new legislation that Congress would be able to deliver in the short term," the DOF said. "This is the reason why the projected National Government deficit is 3.5 percent of GDP instead of the 2.5 percent recommended by the IMF."

Since deliberations started in 2003, Congress has so far passed only two revenue measures. One is the lateral attrition law which would allow savings through the gradual reduction of government bureaucracy and the other is the increase in the excise tax rates on cigarettes and alcohol.

The amendment to the excise tax law, however, would not yield as much as originally envisioned in the DOF’s original proposal to index the tax rate to inflation in order to depoliticize and automate the adjustment in the tax rate.

Sources said this was the reason why the adjustment of the value-added tax (VAT) rate had to be put on the table for discussion in order to make up for the amount that would not be raised through the excise tax on alcohol and tobacco.

The IMF has been pushing for a more drastic adjustment in the country’s tax structure in order to expand the government’s revenue base on a sustainable basis.

After its visit to the country late last year, the IMF said it supported the government’s P80-billion incremental revenue package as "sufficiently aggressive" regardless of the source.

The IMF’s only warning was against the proposed tax amnesty program which IMF officials said did not indicate any benefit in terms of incremental revenues.

Mission head Masahiko Takeda said last year that the P80-billion package presented by Philippine officials was "sufficiently significant" but he said the amnesty program was unnecessary.

"I thought their views were consistent with us," Takeda said, referring to Philippine officials. "We believe that tax amnesty would not really help."

The Arroyo administration is planning to offer another tax amnesty to delinquent taxpayers even after the Department of Finance (DOF) said that the idea has a history of repeated and costly failures in the past.

The DOF reported the government has had little success with its past tax amnesty programs, collecting no more than P1 billion worth of backtaxes from delinquent taxpayers who agreed to come out and avail of the amnesty program.

Congress has been toying with the idea of another tax amnesty program since December 2003. If approved, it would be the 16th amnesty program in 14 years.

According to the DOF, however, the previous tax amnesty programs implemented in the past have had little success in generating the revenues that government had hoped to generate because the target individuals and businesses do not actually avail of the program.

Sources from the DOF said that tax evaders have had little incentive to come forward and begin paying their taxes because the government was never serious about going after tax evaders in the past.


Reported by: Sol Jose Vanzi

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