The paper reviews the revenue performance of the national government for the Calendar Year (CY) 2007.
The country’s economy continued to expand at a rapid pace in 2007 as the Gross Domestic Product (GDP) registered an increase of 7.2% from 5.4% in the previous year. Likewise, the Gross National Product (GNP) rose by 8.0%, stronger than the 6.1% growth in 2006 brought about by the continued inflow of remittances from abroad. The net factor income from the rest of the world posted a double digit increase of 16.5% brought about by the 31.0% increase in net income flows from properties abroad.
The bulk of the GNP in 2007 was provided by the service sector, 44.7%; followed by the industry sector, 29.6%; and Agriculture, Fishery & Forestry (AFF) sector, 16.7%. The remaining 8.9% was contributed by the net factor income from abroad (NFIA).
The national government (NG) revenue continued to increase from P 979.6 billion in 2006 to P 1,137.6 billion in 2007, or by 16.1%. The bulk (82.1%0 of NG revenue came from taxes while non-tax sources contributed the remaining 17.9%. Non-tax revenue grew faster than tax revenue at 70.0% as against 8.6%. The significant increase in non-tax revenue was the result of the privatization efforts of the government.
The tax effort decreased from 14.3% in 2006 to 14.0% in 2007 or by 1.4% while revenue effort increased from 16.2% to 17.1%, or by 5.4%. The drop in the tax effort indicates failure on the part of the government to increase tax collection commensurate to the growth of the economy.
Indirect taxes have a slightly share of 53.0% in the tax revenue pie than direct taxes with 47.0% share. However, indirect taxes increased at a slower pace of 6.6% from P 472.8 billion in 2006 to P 495.9 billion in 2007 compared with direct taxes which grew by 13.2% from P 387.0 billion to P 438.1 billion, during the same period.
The Bureau of Internal Revenue (BIR) collections, which contributed 76.4% of the total NG tax revenues, increased from P 652.7 billion in 2006 to P 713.6 billion in 2007 or by 9.3%. However, the BIR fell short of its collection target by P 52.3 billion or by 6.8%. The increased availment of Tax Debit Memo (TDM), lower interest rates on bank deposits and government securities, frontloading of inventories of cigarette manufacturers in anticipation of increase in tax rates, and the shift in sourcing refined petroleum products from local refineries to importation were among the causes of shortfall in BIR collections. The Bureau of Customs (BOC) is the second major contributor to the NG tax revenue contributing 22.6% in 2007. Like the BIR, the BOC also failed to meet its revenue goal by P 17.7 billion or by 7.8% during the period. The failure of the Bureau to meet its collection target was attributed to the robust appreciation of the peso against the US dollar and the lower than expected import value.
Because of the lower-than-target tax collection, the government was forced to sell state-owned assets to keep up with the aim of reducing the budget deficit. Proceeds from privatization, amounting to P 90.6 billion more than offset the shortfalls of the BIR and the BOC in 2007.
