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When President Gloria Macapagal-Arroyo unveiled her administration’s P1.7-trillion Public Investment Program for the last three years of her presidency, the question on everyone’s lips was an unbelieving, “Where will she get all that money?” Ms Arroyo hastened to supply the answer by citing three major funding sources: P1 trillion from revenue collections, P300 billion from the earnings of government corporations, and P400 billion from private investments, local government units and foreign assistance. Those figures hardly reassured those who suspected that she did not have her feet planted firmly on the ground. But while such carping and cynicism were expected from her usual critics, whether in the opposition or the media, what caught administration officials by surprise was the public airing of similar doubts by the London-based Fitch Ratings.The day after the President delivered her State of the Nation Address, Fitch declared that the government would not be able to carry out its “ambitious” infrastructure development program unless there was a “significant improvement in tax collection.” The government’s revenue collection effort during the first six months has been disappointing, the international credit rating agency said, noting that while real economic growth was believed to have averaged 6.5 percent in the first half of 2007, “the 3.4 percent growth in tax receipts was rather poor.” Because of the revenue shortfall, Fitch said, the government would not be able to achieve its goal of holding the budget deficit down to P63 billion, and the full-year deficit would balloon to P125 billion.
Finance Secretary Margarito Teves promptly disputed Fitch’s basis for its gloomy prediction, saying it didn’t count the expected proceeds from the sale of some government assets. He said that with the privatization of some big-ticket items and improved collections, the government would still be able to keep the deficit at P63 billion for the whole year.
The fact remains, however, that both the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) have failed to achieve their collection targets so far this year. The BIR, which was given a collection target of P373.3 billion for the first half of the year, managed to collect only P334.7 billion. The BOC collected P92.2 billion against its target of P105.3 billion. Thus, the two principal tax collecting arms of the government fell short of their targets by a total of P51.7 billion. And this is the reason the actual deficit widened to P41 billion compared to the target of P31 billion.
Despite the confident pose they put on, Teves and other officials are obviously very much worried by the shortfalls in revenue collection. And they should be, for the administration’s infrastructure program, which the President intends to be the country’s springboard to First World status, hinges on the government’s ability to raise funds.
Right now those ambitious projects look like pure fantasies, given the poor performance of the government revenue-collecting agencies. With this year’s revenue shortfall, the targets given to the BIR and BOC under the proposed 2008 budget don’t seem realistic at all: P845 billion for the BIR, up 14 percent from its P740 target for 2007; and P254.5 billion for the BOC, up 10 percent from this year’s P231 billion.
Finance officials have been scrambling to find ways of pushing up collections, starting with the sacking of Internal Revenue Commissioner Jose Mario Buñag for the BIR’s failure to deliver the targeted revenue. More recently, the revenue district offices were ordered to conduct a tax-compliance audit, aimed at flushing out tax cheats. There was also the successful bidding for the coal-fired power plant in Masinloc, Zambales, which fetched $930 million. With some luck, the government might yet be able to prove Fitch wrong as far as the deficit is concerned.
But the administration cannot bank on the sale of government assets to bridge the gap between revenues and expenditures, much less to finance its infrastructure-building program; there are only so many of those assets, and soon everything will be gone. The key is efficiency in tax collection, which seems to be the direction the government is taking.
Filipinos should hope the effort to collect the right amount of taxes will succeed this time. Otherwise, the administration might ask Congress to pass new tax measures, which would again penalize honest taxpayers and continue to reward tax evaders.
