People line up to file their income tax returns at the Bureau of Internal Revenue office in Intramuros, Manila, April 18, 2022. — PHILIPPINE STAR/ RUSSELL A. PALMA

THE PHILIPPINES’ tax effort eased in 2020 due to the coronavirus disease 2019 (COVID-19) lockdowns, falling below the Asia-Pacific average, a study showed. 

The Philippines’ tax-to-gross domestic product (GDP) ratio stood at 17.8% in 2020, slightly lower than the 18.1% recorded in 2019, according to the Organisation for Economic Co-operation and Development (OECD) in a report released on Monday. 

The Philippines’ tax-to-GDP ratio was the fourth highest among eight Southeast Asian economies. 

Philippines’ tax effort eased in 2020

However, it was below the Asia-Pacific regional average of 19.1% in 2020, which was skewed by the above-average ratios of 12 of the 28 economies involved in the study. This includes Japan (31.4% in 2019), South Korea (28%), Vietnam (22.7%), Mongolia (21.2%), Cambodia (20.2%), and China (20.1%).

Taxes on goods and services were the main source of tax revenue in the Philippines, representing 7.3% of GDP, or 40.8% of the total taxes in 2020. This declined from 7.7% of GDP and 42.5% of the total logged in 2019 or before the COVID-19 pandemic.

Taxes on goods and services included contributions from value-added tax (VAT), which accounted for 21.1% of the total or 3.8% of GDP. This was also lower than the 23.6% of the total or 4.3% of GDP recorded the previous year.

The Philippines’ lower tax-to-GDP ratio can be attributed to the slowdown in economic activity as the government imposed among the longest and strictest lockdowns in the world to curb COVID-19 infections in 2020.

In 2020, the Philippine economy shrank by a record 9.6%.

In the Asia-Pacific region, revenues from taxes on goods and services also decreased in 20 other economies, but were still the top source of tax revenues in 2020, amounting to 50.6% of the total. The share of VAT was at 23.1%.

Meanwhile, tax revenues for income and profits in the Philippines was 6.4% of GDP in 2020, or 36.1% of total taxation. There were minimal increases from 2019, when it was also at 6.4% of GDP and 35.7% of the total then.

In 2020, corporate income tax revenue declined by 9.77% in the Philippines, while personal income tax revenue also fell by 6.3%.

The decline in corporate income tax collection was partly due to the approval of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which lowered the corporate income tax rate from 30% to 25% to attract more investments and help companies weather the crisis.

In the Asia-Pacific region, corporate income tax accounted for 18.8% and personal income tax for 16% in 2020.

Tax revenues collected by the Philippine National Government accounted for 78.3% of the total in 2020, lower than the 80.6% in 2015. Local government units accounted for 5.9% of the total, while 15.7% came from social security contributions.

“Local governments in the Philippines have a narrow range of taxes under their jurisdiction, relying on property taxes and taxes on income and profits,” the OECD said.

The Philippines was also among six countries that sourced more than 15% of total tax revenues from social security contributions, accounting for 2.8% of GDP.

In Asia, social security contributions only had minimal contributions to total tax revenues at 6.3%.

In the Philippines, nontax revenue was at 2.3% of GDP in 2020, among the lowest in the Asia-Pacific region. This is despite 58% of nontax revenues coming from property-related income, the fifth highest among the 19 economies with available data.

The rest of nontax revenues in the Philippines were credited to miscellaneous and unidentified revenue (27.8%), sales of goods and services (14.1%), and grants (0.1%).

Revenues from taxes on property represented only 0.5% of GDP or 2.7% of total contributions.

In the region, property income accounted for over 30% of total nontax revenue in more than half the economies with available data.

Interestingly, the Philippines had among the highest revenues from environmentally related taxes in 2020 at 1% of GDP. About a third of these taxes were raised via taxes on energy. — Diego Gabriel C. Robles