The Philippines government, with assistance from faculty at the Duke Center for International Development (DCID) at the Sanford School of Public Policy, released its first tax expenditure report on Thursday, March 27. Dr. Graham Glenday of DCID has been advising the government on the report’s preparation, methods and interpretation since March 2011.
Tax expenditure reports list tax breaks and how much each one costs, helping policymakers evaluate government expenses more effectively. Unlike direct spending, tax expenditures receive less scrutiny and require little documentation.
Publishing tax expenditure reports has become a routine practice among member countries of the OECD (Organization for Economic Cooperation and Development) since the United States published the first report in the early 1970s. In recent years a number of emerging economies such as India and Thailand also have started coming out with tax expenditure reports.
“The first report for the Philippines focused on tax expenditures related to investment incentives, a key economic policy issue in the region,” Glenday said. “It is expected that the annual report will be published with increasing coverage in future years as the methods are developed and data becomes available.”
The report, which analyzes tax expenditures in 2011, noted that the revenue loss from tax incentives for corporations amounted to at least 144 billion pesos ($3.2 billion) that year. This is equivalent to 1.5 percent of the Philippines’ gross domestic product and 9.3 percent of the government’s expenditures.
“Within the current tax incentives system that has been largely unaccounted and uncoordinated, the government loses billions of pesos in revenues every year which could have helped improve our fiscal position,” Cesar Purisima, Finance Secretary of the Philippines, said in a press release.
Based on the findings of the report, the Department of Finance is pushing to enact two bills to tighten controls over the process for granting tax relief.
“Tax incentives distort the tax structure of the Philippine economy,” Purisima said in the release. “Through these twin fiscal incentive reform measures, in the long term the government will enhance the country’s fiscal capacity, level the playing field and improve competitiveness and investment opportunities.”
Glenday worked with two local consultants, Jem Armovit of the World Bank office and Renato Reside of the University of Philippines in advising a team within the Department of Finance. The advisory work was sponsored by the World Bank.
DCID faculty have also assisted the Philippines government with the development of revenue forecasting models and provided training on revenue forecasting for government officials. A number of officials from the Department of Finance and Bureau of Internal Revenue have attended the Tax Analysis and Revenue Forecasting (TARF) program at Duke University over the past decade.