Source:
https://scmp.com/news/asia/southeast-asia/article/3089513/philippines-eyes-new-taxes-fund-economic-stimulus-amid
Asia/ Southeast Asia

Philippines eyes new taxes to fund economic stimulus amid coronavirus pandemic

  • Lawmakers are considering taxes on everything from online casinos to Facebook ads and Netflix subscriptions to help bankroll additional spending
  • Though they could slow economic activity, Manila needs new sources of revenue if it is to keep the fiscal deficit at 9 per cent or less of GDP
People shop at a makeshift market in Quezon City, Metro Manila. Photo: Bloomberg

The Philippines is considering introducing a raft of new taxes to fund economic stimulus in the wake of the coronavirus pandemic, despite the risk that these levies could slow economic activity even further.

With an economy that is expected to contract by the most in at least three decades this year, the Philippine government’s ability to marshal fiscal stimulus is limited. Its commitment to keeping the fiscal deficit at 9 per cent or less of gross domestic product means Manila can spend only about another 180 billion pesos (US$3.6 billion) unless it finds new sources of revenue, Finance Secretary Carlos Dominguez has said.

Lawmakers are considering taxes on everything from online casinos to Netflix subscriptions to help bankroll additional spending.

The proposals “are meant to raise revenues without eroding growth or significantly affecting the poor and the working class”, according to a policy brief sent by congressman Joey Salceda, who heads the Ways and Means Committee in the Philippine House of Representatives.

The Philippines is considering expanding value-added tax to cover subscription-based services like Netflix. Photo: Reuters
The Philippines is considering expanding value-added tax to cover subscription-based services like Netflix. Photo: Reuters

Governments across Asia are looking at new sources of revenue for spending against the virus’s blow. India is considering increasing import levies on edible oil, while Indonesia and Thailand are preparing regulations to collect value-added-tax on digital products.

In the Philippines, the government’s antivirus fiscal package amounts to 3.1 per cent of GDP, said Jessie Lu, a Singapore-based economist at Continuum Economics. That “pales in comparison with its regional peers,” such as Malaysia and Singapore, which have each announced stimulus worth nearly 20 per cent of GDP.

At the same time as new taxes are on the table, the Philippine Finance Department wants to slash the corporate income tax rate from 30 per cent to 25 per cent by July to help companies during the pandemic. The bill, which is pending in Congress, is expected to reduce revenues by 42 billion pesos (US$839 million) this year and 625 billion pesos over the next five years, according to the department’s estimates.

New taxes are in line with the government’s goal of fiscal sustainability, but could “stifle consumption”, a key driver of the Philippine economy, said Nicholas Mapa, a senior economist at ING Groep NV in Manila. “What you want is to put money into consumers’ pocket.”

A ‘Welcome Back’ sign is displayed in the window of a fashion store in Makati City, Metro Manila. Consumer spending accounts for more than 70 per cent of the Philippines’ economy. Photo: Bloomberg
A ‘Welcome Back’ sign is displayed in the window of a fashion store in Makati City, Metro Manila. Consumer spending accounts for more than 70 per cent of the Philippines’ economy. Photo: Bloomberg

An oil tax increase in 2018 stoked inflation and damped household spending, which accounts for more than 70 per cent of the economy. This year, rampant job losses at home and abroad are forcing households to tighten their belts.

“We doubt the fiscal and monetary stimulus combined will be effective in averting a recession this year,” said Continuum’s Lu, who expects the economy to shrink 2 per cent this year before growing 7.4 per cent in 2021.

Despite risks from the pandemic, the Japan Credit Rating Agency upgraded the Philippines’ sovereign debt rating this month, saying the nation’s “fiscal soundness will not be impaired”.

Some of the revenue measures under consideration include expanding value-added tax to cover digital advertising services rendered by the likes of Google and Facebook, and subscription-based services like Netflix or Spotify. Pending in Congress, the bill also seeks to make digital platforms – which link customers with providers of goods and services – withholding agents for income tax, raising an estimated 29.4 billion pesos in the first year and 172.5 billion pesos over five years, according to the Ways and Means Committee.

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The bill would also levy an income tax of 25 per cent on foreigners working in online gaming companies in the Philippines, which mainly cater to Chinese gamblers, and a 5 per cent franchise tax on gross revenue or receipts derived from such operations – raising an estimated 30 billion pesos in the first year and 199 billion pesos over five years.

The government is also looking to raise fees by 30 per cent for use of roads by private and government vehicles. The funds are usually earmarked for road maintenance and air pollution control. This is estimated to raise 9.4 billion pesos of revenue in the first year and 219.7 billion pesos over five years.

Meanwhile, in May, a 10 per cent duty was imposed on imported crude oil and refined petroleum products to fund coronavirus relief. Rates will revert to 0 per cent when international oil prices increase. The measure has raised at least 1.2 billion pesos so far, Dominguez said by text message.