The Department of Finance (DOF) said the P30-billion windfall from Mighty Corp. as payment for its tax liabilities would help the government finance unplanned expenses as consequence of calamities visiting the country every so often.
According to Finance Secretary Carlos G. Dominguez III, the windfall will significantly boost the national coffers at a time when the government has to find the resources to meet the unexpected cost arising from such calamities.
Aside from adding to the calamity fund, the settlement money will also keep the company out of the cigarette business and be taken over by the Japan Tobacco International (JTI).
The JTI takeover would increase the “sin” tax collection by P1 billion a month, help improve health-care facilities, fund the procurement of additional medicines and provide services helping prevent and control diseases caused by tobacco use.
In his second State of the Nation Address (Sona), President Duterte ordered the DOF and the Bureau of Internal Revenue (BIR) to accept Mighty Corp.’s settlement offer of P25 billion, excluding some P5 billion in value-added tax (VAT) charges arising from the sale of the company to JTI.
“This will be the largest sum of taxes collected ever from a single taxpayer in Philippine history. It brings windfall revenues for the government during a time when calamities inflicted unexpected spending burdens for the government,” Dominguez said at the briefing of the Development Budget Coordination Committee (DBCC) for the Senate committee on finance on Wednesday.
Duterte also said the windfall will help the government in rehabilitation efforts for conflict-hit Marawi City and the quake-devastated Ormoc City.
On July 20 the BIR collected P3.4 billion from this cigarette company as settlement of its tax liabilities with the date of the full collection of the remaining P21.5 billion and the other P5 billion for the VAT depending on how swift the Philippine Competition Commission approves the sale of Mighty Corp. to JTI.
At the DBCC briefing for senators, Dominguez said government revenues as percent of the GDP beginning this year up to 2022 should improve to 17.7 percent, from the current 15 percent, through reforms in tax policy and administration.
“Tax revenues-to-GDP will increase from 13.7 percent in 2016 to 17 percent in 2022. This will bring our tax effort to about the regional average,” he added.
The national government aims to generate revenues totaling P2.8 trillion, or 16.3 percent of GDP in 2018.
“We benefited tremendously from the prudent financial management of the last decade. The prudence paid off in the form of decreasing national government debt-to-GDP ratio. Even with the programmed increase in the deficit-to-GDP ratio to pump-prime the economy, we [still] expect the debt-to-GDP ratio to be even more benign by 2022,” Dominguez said.
As a fraction of government revenues, interest payments fell from 36.9 percent in 2005 to only 13.8 percent in 2016. As a fraction of expenditures, this also fell from a high of 31.1 percent in 2005 to only 12 percent in 2016.
“We project that by 2022, the national debt should have climbed down to only 37.7 percent of GDP. National government debt has become more manageable by the day,” he said.