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Tax tightrope

The Asian Development Bank warned Asian governments, including the Philippines, of the need to be cautious in slapping additional taxes as the mobilization of tax revenues can be done in the medium term, especially as economies are just starting to recover from the pandemic.

The Manila-based multilateral lender warned of the timing of implementing additional taxes that would likely be a burden to customers. ADB Economic Research and Regional Cooperation Department adviser Donghyun Park said that tax reforms are more acceptable when stakeholders understand their urgency.

“I think Asian governments do need to be very careful in mobilizing more taxes, to put it bluntly, raising taxes in this kind of uncertain and fragile growth environment,” he said.

Based on the government’s fiscal consolidation plan, Filipinos would have to prepare for additional taxes and reduced exemptions in order to pay off record-high debts. The Department of Finance has proposed that president-elect Ferdinand Marcos Jr. can repeal exemptions on VAT, retaining the coverage to a few purchases only, including agricultural, food and medical products.

Park argued that greater tax revenue mobilization is a balanced effort and governments need to raise money from sources such as value added tax, which are generally lower rates in developing Asia compared to other regions.

Raising taxes is never popular but faced with crushing debt, the incoming administration may be left with few options. It would be a pleasant surprise if the country’s new economic team can find a better way to raise revenues for debt servicing, but if it cannot and more taxes are the only solution, Filipinos can only hope that its implementation can be done in such a way that it doesn’t hurt so much.

It will be interesting to see how the incoming administration handles this tricky issue of finding the right balance of taxes that Filipinos who are still recovering from the devastating effects of the pandemic will have to shoulder, now that reality has set in and promises have to be kept.*

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November 2022
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