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NEWS UPDATES 5 July 2010

Philippine Central pushes more taxes

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Bangko Sentral ng Pilipinas (BSP) said lifting the country’s sales tax would help the government finance its spending requirements, the Manila Times reports.

“We should give the new administration the opportunity to improve tax administration and really improve tax collection before considering any new tax measure,” BSP Deputy Governor Diwa Guinigundo having said the above, admitted that the new government should not close its doors to reviewing possible tax measures, including a proposal to raise the value-added tax (VAT) rate to 15 percent.

“Maybe sooner or later they will have to review it,” he said.

The BSP official had said that the previous administration’s success in raising the VAT helped improve not only the government’s finances, but also the overall economic environment.

On Friday, Finance Secretary Cesar Purisima told Bureau of Internal Revenue (BIR) personnel to aim for improving tax efficiency, to make the Philippines at par with its neighbors.

Purisima said the new government would aim for a 17 percent tax effort, or similar to the level achieved by the government under then President Ramos.

“The government achieved its highest tax effort rate during the time of [former finance secretary] Bobby de Ocampo under the Ramos administration. With the present administration, we hope to see that happening as well,” Purisima said.

After exhorting tax bureau personnel to aim for this higher figure, Purisima told reporters that the new government would keep to the 15 percent ratio of tax collections to gross domestic product.

“I just reminded them that it could really be done, and that it could likewise be achieved within the new administration’s term if they would put in their full effort in collecting tax due to the government,” he said.

The new government’s target is still below of the average 16 percent for Asian countries.

Purisima said there is a need to raise the tax effort since President Aquino does not want to impose new taxes.

“We cannot depend on other means to raise the government’s revenue but through tax efficiency in order for us to operate and deliver the social services due to its citizens. Thus, we have to strengthen our tax efficiency to meet the needs to the people,” the Finance chief said.

Purisima said the government needs to do a lot of frontloading activities in the areas of agriculture, infrastructure, and social welfare to attract investors.

The 15 percent target tax effort is higher than the previous administration’s goal of 13.8 percent, as well as last year’s 12.8 percent.

Tax effort measures the government’s efficiency in collecting taxes, and is the ratio of collections to GDP.

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