FISCAL POLICY

in the Philippines
by Abegail Kaye C. Biado
 What is Fiscal Policy?

• Fiscal policy refers to the "measures employed by governments to stabilize

the economy, specifically by manipulating the levels and allocations of taxes
and government expenditures.
• Fiscal measures are frequently used in tandem with monetary policy to
achieve certain goals. In the Philippines, this is characterized by continuous
and increasing levels of debt and budget deficits, though there have been
improvements in the last few years.
• Fiscal policy during the Marcos administration was
primarily focused on indirect tax collection and on
government spending on economic services and
infrastructure development.
• The first Aquino administration inherited a large fiscal
deficit from the previous administration, but managed to
reduce fiscal imbalance and improve tax collection
through the introduction of the 1986 Tax Reform
Program and the value added tax.
• The Ramos administration experienced budget surpluses due to
substantial gains from the massive sale of government assets and
strong foreign investment in its early years. However, the
implementation of the 1997 Comprehensive Tax Reform Program
and the onset of the Asian financial crisis resulted to a
deteriorating fiscal position in the succeeding years and
administrations.
• The Estrada administration faced a large fiscal
deficit due to the decrease in tax effort and the
repayment of the Ramos administration’s debt to
contractors and suppliers.
• During the Arroyo administration, the Expanded Value
Added Tax Law was enacted, national debt-to-GDP ratio
peaked, and under spending on public infrastructure and
other capital expenditures was observed.
 Revenues and Funding
• The Philippine government generates revenues mainly through
personal and income tax collection, but a small portion of non-
tax revenue is also collected through fees and licenses,
privatization proceeds and income from other government
operations and state-owned enterprises.
Tax Revenues

• Tax collections comprise the biggest percentage of revenue

collected. Its biggest contributor is the Bureau of Internal
Revenue (BIR), followed by the Bureau of Customs (BOC). Tax
effort as a percentage of GDP has averaged at roughly 13% for
the years 2001-2010.
Income Taxes

• Income tax is a tax on a person's income, wages, profits arising

from property, practice of profession, conduct of trade or
business or any stipulated in the National Internal Revenue Code
of 1997 (NIRC), less any deductions granted. Income tax in the
Philippines is a progressive tax, as people with higher incomes pay
more than people with lower incomes.
E-Vat

• The Expanded Value Added Tax (E-VAT), is a form of sales tax that is
imposed on the sale of goods and services and on the import of goods into
the Philippines. It is a consumption tax (those who consume more are taxed
more) and an indirect tax, which can be passed on to the buyer. The current
E-VAT rate is 12% of transactions. Some items which are subject to E-VAT
include petroleum, natural gases, indigenous fuels, coals, medical services,
legal services, electricity, non-basic commodities, clothing, non-food
agricultural products, domestic travel by air and sea.
The E-VAT has exemptions which include basic commodities and
socially sensitive products. Exemptible from the E-VAT are:

• Agricultural and marine products in their original state (e.g. vegetables, meat, fish,
fruits, eggs and rice), including those which have undergone preservation processes
(e.g. freezing, drying, salting, broiling, roasting, smoking or stripping);
• Educational services rendered by both public and private educational institutions;
• Books, newspapers and magazines;
• Lease of residential houses not exceeding P10,000 monthly;
• Sale of low-cost house and lot not exceeding P2.5 million
• Sales of persons and establishments earning not more than P1.5 million annually.
Tariffs and Duties

• Second to the BIR in terms of revenue collection, the Bureau of

Customs (BOC) imposes tariffs and duties on all items imported
into the Philippines. According to Executive Order 206, returning
residents, Overseas Filipino Workers (OFW’s) and former Filipino
citizens are exempted from paying duties and tariffs.
Non-tax Revenue

• Non-tax revenue makes up a small percentage of total

government revenue (roughly less than 20%), and
consists of collections of fees and licenses, privatization
proceeds and income from other state enterprises.
The Bureau of Treasury

• The Bureau of Treasury (BTr) manages the finances of the government, by

attempting to maximize revenue collected and minimize spending. The bulk
of non-tax revenues comes from the BTr’s income. Under Executive Order
No.449, the BTr collects revenue by issuing, servicing and redeeming
government securities, and by controlling the Securities Stabilization Fund
(which increases the liquidity and stabilizes the value of government
securities) through the purchase and sale of government bills and bonds.
Privatization

• Privatization in the Philippines occurred in three waves: The first

wave in 1986-1987, the second during 1990 and the third stage,
which is presently taking place. The government’s Privatization
Program is handled by the inter-agency Privatization Council and
the Privatization and Management Office, a sub-branch of the
Department of Finance.
PAGCOR

• The Philippine Amusement and Gaming Corporation (PAGCOR)

is a government-owned corporation established in 1977 to stop
illegal casino operations. PAGCOR is mandated to regulate and
license gambling (particularly in casinos), generate revenues for
the Philippine government through its own casinos and promote
tourism in the country.