By Luisa Maria Jacinta C. Jocson, Senior Reporter
THE Philippines still has room to implement reforms to enhance its taxation system and make collections more efficient, the International Monetary Fund (IMF) said.
“The Philippines has scope to improve its tax-to-gross domestic product (GDP) ratio,” an IMF spokesperson told BusinessWorld in an e-mail.
“Tax reforms could prioritize excise taxation, enhancing value-added tax (VAT) efficiency and tax administration, and effective control of tax incentives.”
Latest data from the Finance department showed that the National Government (NG) revenues as a share of GDP reached 16.72% in 2024, up from 15.73% in 2023.
Tax effort, which isolates revenue collected in the form of tax, stood at 14.38%, up from 14.1% a year ago but lower than the 14.42% program.
The IMF said the country’s 2025 budget implies a “broadly neutral fiscal stance, which is appropriate given a wider negative output gap.”
“Implementing a gradual fiscal consolidation over the medium term, in line with the authorities’ medium-term fiscal plans, is critical to reduce debt and gross financing needs,” it added.
The IMF also noted the Philippines narrowing fiscal gap, as the deficit-to-GDP ratio has declined to 5.7% of GDP in 2024 from 6.2% in 2023.
Based on the latest Development Budget Coordination Committee estimates, the NG set its deficit ceiling at 5.3% of GDP this year. The DBCC is targeting to bring it down to 3.7% by 2028.
Finance Secretary Ralph G. Recto earlier said he is not seeking to introduce new taxes, instead focusing on improving collection efficiency and ramping up nontax revenues.
The IMF had previously raised the areas of improvement for the Philippines’ tax system, particularly VAT.
Earlier data from the DoF showed that the Philippines had one of the lowest VAT efficiencies in Southeast Asia in 2023, despite having the region’s highest VAT rate at 12%.
From 2016 to 2020, the country collected an average of P723 billion from VAT, which is only around 40% of the expected VAT collection.
GROWTH OUTLOOKMeanwhile, the IMF spokesperson said the Philippine economy “holds significant potential.”
“It has rich natural resource endowments, and a significant demographic dividend,” it said.
“Continued efforts aimed at attracting investment, enhancing competitiveness, and improving the business environment will help support exports and enhance growth potential,” it added.
In its latest World Economic Outlook, the IMF slashed its GDP projection for the Philippines to 5.5% this year from its 6.1% forecast previously.
This after it priced in the direct impact of higher tariffs on the Philippines’ exports to the US, as well as higher global uncertainty from these tariff policies.
IMF Asia and Pacific Department Director Krishna Srinivasan said this downgrade reflects “significant external shocks.”
“In the case of the Philippines, exposure to the US is not as significant… it’s not that low either, it’s about 17%. So, there is still a significant exposure on the external side,” he said at a briefing on April 24.
“Domestic demand, even though it’s relatively robust, there could be more action there. But the fact that we revised it by 1.1 percentage points cumulative to two years, reflects largely the trade impact and the heightened uncertainty.”
Meanwhile, Mr. Srinivasan said there is room for further monetary easing as inflation has been manageable.
“Inflation is at or below target in many countries. For countries where they are, there is room to engage in monetary easing,” he said.
“Many countries in the region, including the Philippines, have the monetary policy space. I would say less so on the fiscal side,” he added.
Despite a policy pause in February, the Bangko Sentral ng Pilipinas (BSP) resumed its rate-cutting cycle earlier this month with a 25-basis-point (bp) rate cut.
Though there is room to deploy policy easing, Mr. Srinivasan said central banks must continue to watch out for volatility.
“That said, countries do have to look at what’s happening in inflation in advanced economies, what the major central banks are doing, because that has implications for movements in exchange rate, capital flows and so on.”
“Here we are quite clear that, you know, at the end of the day, exchange rates should be the buffer against shocks,” he added.