Wednesday, April 20, 2005

IMF: RP in bottom 8 of poor tax collectors

At 20 percent, the Philippines has one of the lowest ratios of public revenues to gross domestic product (GDP) in the period 1990 to 2002, according to the International Monetary Fund (IMF).

This ranks the Philippines 26th among 32 emerging market economies reviewed by the multilateral lender.

In its World Economic Outlook report, IMF said the Philippines belongs to the bottom eight in terms of public revenues to GDP ratio.

The IMF also reported that China has a 14-percent ratio; Costa Rica, 16 percent; Lebanon, 17 percent; Pakistan, 18 percent; Indonesia, 18 percent; India 19 percent and Cote d’Ivoire, 19.5 percent.

The lender said emerging market economies generally have more volatile revenue ratios and effective tax rates than industrial countries.

In terms of effective direct tax rate, the Philippines’ stood at 15 percent of GDP while its effective indirect tax rate was at 8 percent of GDP, the lowest among 13 emerging market economies.

In terms of volatility of revenues, the Philippines public revenues to GDP ratio stood at 12 percent, higher than other Asian countries such as Malaysia with 6 percent; Thailand, 7 percent and India, 4 percent.

The Philippines has the same ratio with Indonesia, while Korea and China had higher ratios of 15 percent and 19 percent, respectively.

Given the above situation, the IMF urged emerging market economies to exercise sustained packages of reforms to strengthen and broaden the tax base.

This would provide governments access to higher and less variable revenues, while reducing their high public debt.

The increase in public debt in emerging market economies has been concentrated in Latin America and Asia.

The IMF said effective tax rates of emerging markets are generally low, suggesting tax avoidance through legal or illegal means and weak tax administration remain "serious" issues to be addressed.

Emerging market economies were told to implement reforms such as tax and expenditure improvements, reduction of exposure to exchange rate and interest rate movements, and addressing the risks from contingent and implicit liabilities. The IMF said the continued reliance on taxes and transfers related to commodity exports is a weakness of many current tax systems, and efforts are needed to broaden the tax base.

The average public ratio in emerging market economies, which is about 70 percent of GDP, now exceeds that of industrial countries.

The IMF said the high level of public debt raises the risk of a fiscal crisis in some countries and imposes high costs, discouraging private investment, and constraining the flexibility of fiscal policy.

The lender said governments in emerging market countries generally have weak revenue bases with lower yields and higher volatility and are less effective at controlling expenditures during economic upswings.

It said a sustainable public debt level for a typical emerging market economy should be 25 percent of GDP.

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