Sustained rise in gov't revenues seen

July 26, 2020

Improvement of the government’s revenue collection is expected to be sustained after June on continued re-opening of the domestic economy, Rizal Commercial Banking Corp.  chief economist Michael Ricafort said.

Ricafort attributed the improvement in tax collections last month to easing lockdown policies after an enhanced community quarantine was raised over mainland Luzon from March 17 until May 15, and until end-May for Metro Manila.

He said the lifting of the highest level of movement restrictions allowed “more businesses/industries/institutions to operate again from lockdowns and leading to some pick up in tax payments by businesses, individuals/households, and other institutions”.

The deadline for the submission of the income tax return, among others, was postponed to June due to the ECQ.

Tax collections by the Bureau of the Internal Revenue alone rose by 79.10 percent year-on-year in June to 282.7 billion against year-ago’s P157.8 billion.

Total revenue collection last month increased by 50.06 percent year-on-year to P351 billion compared to the P233.9 billion in June 2019.

Government spending totaled to P349.2 billion, up by 26.65 percent from year-ago’s P275.7 billion.

This resulted in a budget surplus of P1.8 billion, a 104.22-percent improvement from the P41.8 billion deficit in the same month last year.

However, revenues in the first half of the year declined by 6.09 percent to P1.453 trillion against year-ago’s P1.547 trillion.

BIR’s collections contracted by 10.31 percent to P956.4 billion from year-ago’s P1.006 trillion.

Collections by the Bureau of Customs dipped by 16.47 percent during the same period to P253.1 billion from P303 billion in the same period in 2019.

Total expenditures increased by 26.63 percent to P2.013 trillion against the P1.59 trillion in end-June last year.

This brought the budget gap to P560.4 billion, or 1,214.07 percent higher than the P42.6 billion deficit in the first half of 2019.

Economic managers have anticipated the drop in revenues given the economic impact of the pandemic and they increased the budget ceiling to nine percent of gross domestic product from about 3.2 percent earlier.

The budget deficit this year is expected to reach about P1 trillion from P677.6 billion programmed earlier on account of additional spending to address the health and economic impact of the pandemic caused by the coronavirus disease 2019.

Ricafort said the budget ceiling that has been set by economic managers is “a positive sign in terms of fiscal discipline/performance” and is “a delicate balancing act amid the need to increase government spending for various Covid-19 programs/priorities especially for the most vulnerable sectors”.

He said the “additional government spending on fiscal/economic stimulus would be limited to around P180 billion at the moment and there are no government funds available for now for any additional fiscal/economic stimulus (as new sources of government revenues would be required to finance any additional stimulus spending)”.

Ricafort, however, said the budget can be augmented by fiscal measures such as the 10-percent to 20-percent excise tax on junk food, 12-percent value-added tax on digital transactions, and the five-percent import tariffs.

“Further re-opening of the economy by further relaxing lockdowns/quarantine measures and allowing more businesses to operate and also at much higher capacity could help increase tax revenue collections in the coming months,” he said.

Ricafort said this factor may be countered by the “risk of relatively slower economic recovery/rebound from lockdowns that could still potentially lead to reduced tax revenue collections on a year-on-year basis and may lead to relatively wider budget deficits, with reduced government revenues vis-a-vis the need to increase government spending for various Covid-19 programs”.

Meanwhile, Ricafort said the eventual passage of the proposed Corporate Recovery and Tax Incentives for Enterprises Act bill, which economic managers hope to happen this year, “could lead to some decrease in the government's tax revenue collections especially as early as in the latter part of 2020, thereby could lead to wider budget deficits”.

However, he remains optimistic following the upgrade by Japan Credit Rating Agency of its investment-grade rating on the country to A- with a stable outlook, and the affirmation by Moody’s Investors Service and S&P Global Ratings of their respective investment-grade ratings on the Philippines.

The rating actions, he said, “are signs of resilience despite economic challenges brought about by Covid-19 lockdowns/pandemic that caused credit rating downgrades in some countries worldwide)”.

“(These actions) still attest to the country's improved economic, credit fundamentals, and fiscal performance/discipline, thereby increasing international investor confidence/sentiment on the country and generating more employment and other business/economic activities in the country, as needed to sustain economic recovery/rebound after the Covid-19 lockdowns,” he added.