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THE
Philippines has started benefiting from the reforms it
adopted in its fiscal and monetary sectors, and these
should now help it weather the turmoil ensuing from the
debacles of Lehman Brothers, Merrill Lynch and American
International Group (AIG), the International Monetary
Fund (IMF) said on Thursday.
The
IMF’s resident representative in Manila, Reza Baqir,
particularly cited reforms that strengthened the
country’s value-added tax system, saying this
“strengthened the Philippines’ ability to cope with
externally induced challenges.”
“The
impact on domestic financial markets of the ongoing
global financial stress would have been greater if these
reforms had not been in place,” Baqir said.
“These
reforms also provided resources to the government to
undertake measures to protect the poor from high food
and fuel prices. The conditional cash transfer program
is a good example of using these revenues for
well-targeted spending,” he added.
This was
also why it was important for the government to sustain
its reform agenda over the long stretch as “global
headwinds have not abated and risks remain that
financial and real sector shocks could be propagated
from the US to emerging markets, including the
Philippines,” Baqir said.
He
particularly pointed to the country’s tax effort, which
measures tax collection as a percent of local output or
the gross domestic product, which is one of the lowest
in the region.
The tax
effort is an important barometer of fiscal health, Baqir
stressed.
“Aside
from further reducing Philippine vulnerability, such
reforms would provide sustainable resources for needed
spending on infrastructure and social sectors. Provision
of such public goods is necessary for reducing poverty
and raising growth prospects,” according to Baqir.
Once
again he called on the government to sustain its program
of rationalizing its fiscal-incentives structure to
maximize its revenue haul.
“Our
recent analysis has shown that income tax holidays are
most attractive for very profitable firms, creating
redundancy, and for investment in short-lived assets.
“Measures being supported by the Department of Finance
that would replace tax holidays by a reduced corporate
income tax rate or a low tax on gross receipt would
result in both stronger incentives to invest while
increasing government revenues,” he noted.
Baqir
also urged the government to increase its excise-tax
rate schedule and peg it to inflation, so that revenue
collection moves in tandem with economic expansion.
He also
advocated greater collection efficiency for both the
Bureau of Internal Revenue and the Bureau of Customs
now—before these efforts are overtaken by events related
to scheduled elections in 2010.
“With
elections approaching in 2010, the window for
legislative action may close soon. Accelerating
implementation of the unfinished reform agenda would
help secure the benefits of these reforms,” Baqir said.
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