PHILIPPINE FISCAL POLICY

What is Fiscal Policy?

 Fiscal Policy refers to the "measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures.  Fiscal Policy in the Philippines is characterized by continuous and increasing levels of debt and budget deficits, though there have been improvements in the last few years.  Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals.

Revenues and Funding

 The Philippine government generates revenues through mainly through personal and income tax collection, but a small portion of non-tax revenue is also collected through fees and licenses, privatization proceeds and income from other government operations and state-owned enterprises.

Tax Revenue
 Tax revenue is the income that is gained by governments through taxation.  Tax collections comprise the biggest percentage of revenue collected.  Tax effort as a percentage of GDP has averaged at roughly 13% for the years 2001-2010.

Income Taxes
Income tax is a tax on a person's income, wages, profits arising from property, practice of profession, conduct of trade or business. (Tax code of 1997) Income tax in the Philippines is a progressive tax, as people with higher incomes pay more than people with lower incomes.

Annual Taxable Income

Income Tax Rate

Less than P10,000 Over P10,000 but not over P30,000 Over P30,000 but not over P70,000 Over P70,000 but not over P140,000

5% P500 + 10% of the excess over P10,000 P2,500 + 15% of the excess over P30,000 P8,500 + 20% of the excess over P70,000

Over P140,000 but not over P250,000

P22,500 + 25% of the excess over P140,000

Over P250,000 but not over P500,000

P50,000 + 30% of the excess over P250,000

Over P500,000

P125,000 + 34% of the excess over P500,000

Extended Value Added Tax (EVAT)

 a form of sales tax that is imposed on the sale of goods and services and on the import of goods into the Philippines.  The current E-VAT rate is 12% of transactions.

Tariffs and Duties

 Imposes tariffs and duties on all items imported into the Philippines. According to Executive Order 206, returning residents, Overseas Filipino Workers (OFWs) and former Filipino citizens are exempted from paying duties and tariffs.

Non-Tax Revenue
 Bureau of Treasury The Bureau of Treasury (BTr) manages the finances of the government, by attempting to maximize revenue collected and minimize spending. The bulk of non-tax revenues comes from the BTrs income. Under Executive Order No.449, the BTr collects revenue by issuing, servicing and redeeming government securities, and by controlling the Securities Stabilization Fund  Privatization Incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations.  PAGCOR A government-owned corporation established in 1977 to stop illegal casino operations. PAGCOR is mandated to regulate and license gambling generate revenues for the Philippine government through its own casinos and promote tourism in the country.

Financing and Debt

External Sources of Financing are:  Program and Project Loans  Credit Facility Loans  Zero-coupon Treasury Bills  Global Bonds  Foreign Currencies Domestic Sources of Financing are  Treasury Bonds  Facility loans  Treasury Bills  Bond Exchanges  Promissory Notes  Term Deposits

 In 2010, the total outstanding debt of the Philippines reached P4.718 trillion: P2.718 trillion from outstanding domestic sources and P2 trillion from foreign sources. According to the Department of Finance, the country has recently reduced dependency on external sources to minimize the risks caused by changes in the global exchange rates. Efforts to reduce national debt include increasing tax efforts and decreasing government spending.

History of Philippine Fiscal Policy

Fiscal policy during the Marcos administration was primarily focused on indirect tax collection and on government spending on ecnomic services and infrastructure development. The Aquino administration inherited a large fiscal deficit from the previous administration, but managed to reduce fiscal imbalance and improve tax collection through the introduction of the 1986 Tax Reform Program and the Value Added Tax. The Ramos administration experienced budget surpluses due to substantial gains from the massive sale of government assets and strong foreign investment in its early years. However, the implementation of the 1997 Comprehensive Tax Reform Program and the onset of the Asian Financial Crisis resulted to a deteriorating fiscal position in the succeeding years and administrations. The Estrada administration faced a large fiscal deficit due to the decrease in tax effort and the repayment of the Ramos administrations debt to contractors and suppliers. During the Arroyo administration, the Expanded Value Added Tax Law was enacted, national debt-toGDP ratio peaked, and underspending on public infrastructure and other capital expenditures was observed.