WB Urges PH to Broaden Tax Base Amid Growing Spending Needs

The World Bank (WB) has urged the Philippines to broaden its tax base, stating that stronger revenue collection is essential to meet the growing fiscal demands of an economy that has recently entered the ranks of upper-middle-income countries. Jaffar Al-Rikabi, the World Bank’s senior country economist for the Philippines, said the country’s tax system was riddled with inefficiencies that keep collections below their potential. He pointed to Thailand, which raises more revenue from its value-added tax (VAT) despite imposing a lower rate of 7 percent, compared with the Philippines’ 12 percent. This comparison, he said, suggests the Philippines would benefit more from making tax compliance easier than from raising tax rates. “It’s about how we implement it effectively to ease the burden,” Al-Rikabi said. “There are many international studies showing that when you make it easier to pay taxes, voluntary compliance increases.” He also urged the government to reassess existing tax exemptions, arguing that those found to be ineffective should be scrapped. “If it’s very ineffective, it’s better to collect that revenue and use it, for example, for social protection,” he said. Last Tuesday, the Department of Finance unveiled a proposed tax package that includes higher levies on sugary drinks, tobacco and alcohol, single-use plastics, and wealth. These measures are intended to compensate for the revenue expected to be lost under President Marcos’ tax relief plan for workers and small businesses. The revenue-generating measures are projected to raise P518.71 billion between 2027 and 2030, which would more than compensate for the estimated P326.92 billion the government expects to forgo over the same period by expanding personal income tax exemptions and exempting small businesses from the minimum corporate income tax. This would leave the government with a net fiscal gain of nearly P192 billion. Zafer Mustafaoglu, World Bank’s division director for the Philippines, said the country should improve its revenue mobilization efforts to finance much-needed projects and programs. “As we talk about also the upper middle income countries, the Philippines, as we go forward, needs to increase its revenue bases to support more development,” Mustafaoglu said. “When you increase the revenue bases, a country will need to look at it from all these dimensions—make sure that it doesn’t disturb markets, it’s not regressive and it is fair,” he added.