The share of tax collections in the country’s economic output rose to a record first quarterl level of 14.41% in January to March, according to the Department of Finance (DoF), a sign of improved economic activity amid a coronavirus pandemic.
State tax revenue went up by 0.44 percentage point during the quarter from a year earlier, the agency said in a bulletin.
The DoF traced the improvement to fiscal reforms under the government of President Rodrigo R. Duterte.
“These reforms made the country one of the few emerging economies to maintain investment grade rating and avoid a credit rating downgrade which would have pushed up interest rates and delayed nascent economic recovery,” it added.
The P470-billion revenue generated by the Bureau of Internal Revenue (BIR) accounted for 10.81% of gross domestic product (GDP), up from 10.52% in the first quarter of last year. Customs collections worth P149 billion translated to a tax effort of 3.43% from 3.27%.
Including revenue from nontax sources, the government’s total revenues fell by 1.14 percentage points to 16.03% of GDP in the first quarter from a year earlier.
Meanwhile, the state’s total expenditure effort climbed by 4.32 percentage points to 23.42%. State spending rose by 19.9% to P1.018 trillion.
This resulted in a budget deficit equivalent to 7.4% of GDP, which ballooned from just 1.94% in the same period last year. Economic managers have capped the ratio this year to 9.4%
“The country should continue to adopt fiscal reforms, particularly tax reforms still pending in Congress, to sustain these fiscal gains,” the DoF said.
“Due to fiscal reforms, the country was able to fund the unprecedented fiscal requirements imposed by the pandemic and, at the same time, protect its strong macroeconomic fundamentals,” it added.
Mr. Duterte has enacted a measure that will gradully lower the corporate income tax to 20% from 30%, while streamlining the country’s incentive system.
Two sin tax laws have also been passed since 2019 that increased the excise taxes on tobacco, cigarettes and vapor products and alcoholic beverages.
These meaures followed the flagship tax law that slashed personal income tax, while increasing the excise taxes on various goods and services such as fuel, cars, tobacco, sugar-sweetened beverages and cosmetics, among other products.