WB: Tax reforms a must for steady growth

The World Bank (WB) has called attention to the reluctance of Philippines government leaders to effect a wide range of reforms in the country’s taxation system, which was evident in President Aquino’s rejection of Congress’s initiative to overhaul the income-tax schedule. 

In its “Philippines Economic Update,” the WB noted that higher revenues do not necessarily mean higher tax rates, as tax administration can be improved substantially.

Moving forward, the government must also craft a simpler, more equitable, and more efficient tax system to sustainably finance an investment-led growth, said the WB report.

The multilateral lender also said one of the major reasons the country has not created more and better jobs was its “low levels of investment in human and physical capital, alongside the lack of technological improvement.”

“Higher and more efficient public spending underpinned by increased revenue mobilization, is needed to raise physical and human capital and sustain inclusive growth,” the WB said.

The WB has maintained its 6.4-percent and 6.2-percent growth forecasts for the Philippines this year and the next, and eyes the 2018 output at 6.2 percent.

On the plus side, the WB said the Philippines and Vietnam continue to have the “strongest growth prospects” among member-economies of the Association of Southeast Asian Nations.

It cited the existing pipeline of public-private partnership (PPP) projects, along with election-related spending, as among the boosts to the domestic economy.

“The country also benefits from relatively diversified exports markets and lower global commodity prices,” the WB said.

The WB report also noted the contribution of private investment as a growth driver, and stressed that this “will be a key determinant of the medium-term outlook.”

Ensuring the inclusiveness of the labor market is a plus for the Philippines, it said, citing the positive trends in recent years.

“In the Philippines, economic opportunity and job creation would be significantly enhanced by measures to secure property rights through more systematic adjudication of land rights, to strengthen competition in sectors, such as shipping and telecommunications, that provide key intermediate inputs, and to simplify costly business regulations,” the report said.

However, it added, risks remain and these include the slowdown of inflows from overseas Filipino workers (OFWs) based in oil-exporting countries, lower net exports due to weaker global demand, and possible increase in food prices due to the extended El Niño weather problem.

There are also emerging challenges, it said, and these include the ability to sustain the country’s inclusive growth pattern.

“What is needed now is to institutionalize the reforms made and to accelerate the economic reform agenda,” the WB report said, citing as among the factors here “the enhanced competition in sectors with high impact on jobs, securing property rights through systematic and administrative adjudication of land rights, and simplification of business regulations.”

It also raised the need to prioritize the needs of Mindanao for the region to reach its full potential.

“To this end, the government, business, labor and civil society need to work together and agree on a package of reforms that will maximize the chances that the country will now follow a more inclusive growth path,” the WB report concluded. LUIS LEONCIO