PHL's 2012 fiscal side: The good times and the bad

Published December 19, 2012 6:36pm

2012 was not an easy time for the Department of Finance, with revenue collection still in need of improvement and perennial problems such as smuggling and tax evasion continuing to plague the country.

The Philippine government is losing P200 billion a year to smuggling, according to a World Bank estimate. One of the most insidious methods of the trade is the swing, in which taxable goods are brought through freeports in the guise of tax-free imports, leaving the government with nothing.

The department and its attached agencies are stepping up measures against such criminal efforts.

This month, the Bureau of Customs (BOC) announced that all tax-free importations going through export and freeport zones will undergo mandatory X-ray scanning to thwart swing smugglers.

And as of December 13, the Bureau of Internal Revenue (BIR) has filed just under 140 tax evasion cases under its Run After Tax Evaders (RATE) program. The two most recent cases it filed before the Department of Justice were aiming to collect a combined P169.6 million in tax deficiencies from the delinquent taxpayers.

Still, 2012 was marked with several accomplishments, such as the reduction of the foreign component of government debt. Department employees also saw their hard work over many sleepless nights pay off when the sin tax reform bill was passed.

Credit ratings

There have been some good news for the Philippines on the credit ratings front, with the three major rating agencies—Moody's Investor Service, Standard & Poor's and Fitch Ratings—upgrading the Philippines to just one notch below investment grade in recognition of improving macroeconomic fundamentals and the Aquino administration's good governance efforts.

However, Moody’s, which upgraded the government’s local and foreign currency ratings in October, said that the government must implement structural reforms to improve its revenue stream and secure further positive ratings action.

“Further progress in addressing the country's key weaknesses may prompt a positive rating action: the passage and effective implementation of structural revenue reforms; a more rapid reduction in the general government debt stock; and an acceleration of investment spending that ensures a higher economic growth trajectory,” Moody’s said.

In July, Standard & Poor’s also upgraded the nation’s long-term foreign currency-denominated debt to BB+ from BB.

“President Aquino reversed a decade’s worth of credit rating decline after a little more than two years of serving in office. This just shows how good governance can bring about good economics,” Finance Secretary Cesar Purisima said after the Moody’s upgrade.

The Philippines reached its current rating among the three agencies after after nine positive ratings actions since July 2010.

Sin tax

The passage of the sin tax bill was one of the major accomplishments for the year, not just of the legislature but also of the Finance Department, the BIR and the Department of Health, which all pushed for a bill that yielded high revenues from the sale of tobacco and alcohol products.

The measure will be implemented next year and is expected to bring in more than P30 billion in in additioinal revenues in 2013 alone and P184.31 billion over the next four years.

As of this posting, only the President's signature is needed to make new sin tax measure a law.

Purisima said the measure achieves all essential reforms by correcting inequities in the tax structure that have plagued the system for decades.

The approved version of the measure also removes the price classification freeze that has pegged tobacco products to 1996 prices as the basis of tax classification.

Furthermore, it sets up the move toward a unitary tax regime by 2017 for tobacco and fermented liquor, shifting from the current multi-tiered system.

While the measure's projected collection of P33.96 billion in incremental revenues from tobacco and alcohol for 2013 is below its proponents' original target of P60 billion in the first year, Purisima said the amount will still be enough to finance the Department of Health's Universal Health Care program.

Budget deficit

Data from the Finance Department shows that for the first 10 months of the year, there was double-digit growth in the collections of the government's two largest revenue-collecting agencies: up 13 percent year-on-year to P858.573 billion for the BIR and 11 percent to P240.590 billion for the BOC.

However, both agencies are expected to fall short of the revenue targets of P1.066 trillion for the BIR and P347 billion for the BOC this year.

Despite improved spending year-on-year, the Aquino adminstration is also on its way to falling short of its spending program with the end-October budget gap still way below the deficit ceiling of P279 billion or 2.6 percent of gross domestic product (GDP).

Budget and Management Secretary Florencio Abad said he is optimistic that the government would still be able to meet this year’s program total spend program of P1.839 trillion as government agencies are improving their absorptive capacities in terms of release of allotments and cash disbursements.

October was a good month overall in fiscal terms:

1. The BIR collected P86.105 billion and the BOC raised P26.934 billion, posting double-digit year-on-year increases.

2. The month's deficit of P9.674 billion was smaller than the P21.257-billion budget gap in the same month last year as revenues raised also improved year-on-year by 29.2 percent to P134.320 billion.

3. The Bureau of the Treasury’s income soared by 140 percent, reaching P6.298 billion. Collections from other offices were recorded at P14.983 billion

4. Purisima reported that the government collected P134.320 billion in October, a 29.2-percent improvement from last year and “bringing the 10-month aggregate revenue to P1.253 trillion. This is the second highest monthly growth for the year.”

5. Expenditures rose by 15 percent to P143.994 billion from the P125.196 billion disbursed a year ago.

Purisima said that the country's financial position as of end-October means a reduced risk of fiscal slippage by yearend.

On the other hand, for the January-October period the deficit was P115.736 billion, 55.9 percent wider than the P74.251 billion a year earlier, as both revenues and expenditures improved, according to latest data from the Finance Department. Expenditures increased by 14.5 percent from P1.195 trillion to P1.369 trillion while revenues rose 11.8 percent to P1.253 trillion from P1.121 trillion.

The income of the Bureau of the Treasury was recorded at P71.353 billion for the month period, a 2.7 percent increase year-on-year.

Debt management

Reducing the share of external debt from total borrowings was made into one of the Aquino administration's goals and as one measure to curb the appreciation of the peso against the dollar. Tightening the inflow of more dollars was expected to increase the country's protection from the fluctuations of foreign markets.

Just in November, the government successfully sold $750 million in 10-year global peso notes and $500 million in dollar bonds to local investors.

In January, the Philippines raised $1.5 billion in 25-year dollar bonds maturing in 2037.

“We have successfully reduced the foreign component of our borrowing program,” said National Treasurer Rosalia de Leon.

As of end-September, the government's foreign debt was down to 16 percent of the total borrowing while the share of domestic borrowing increased to 84 percent. The original ratio was 75-percent domestic and 25-percent foreign for 2012 borrowings.

In all, it has been an uphill battle for the Finance Department to raise revenues this year though its attached agencies have managed to improve their performances year-on-year with varying degrees of success. In 2013, the department and its agencies will be tested further as the sin tax measure goes into effect and the results of efforts such as the RATE program and anti-smuggling measures start to bite. — BM/VS, GMA News

Tags: yearender2012, finance, budget, deficit, spending