Philippines Increases Tax Collections by $1.1 Billion Year Over Year—Without Raising Rates

What would you do with an extra $1.1 billion? That amount represents the additional taxes collected by the Philippines government during the first quarter of 2017 versus the same period in 2016. This 12.2 percent increase—during the country’s tax-collecting season—followed the rapid adoption by taxpayers of an electronic tax-filing system introduced by the U.S. Agency for International Development (USAID)’s Facilitating Public Investment (FPI) program, implemented by DAI.

By increasing Q1 tax collections from PHP421.4 billion to PHP472.9 billion, or US$8.4 billion to $9.5 billion—without raising tax rates—the Philippines will be able to invest in its ambitious program to develop infrastructure and eradicate extreme poverty.

Since 2013, FPI has assisted the Philippines’ Bureau for Internal Revenue (BIR) to improve its e-filing and e-payment systems, and recently the FPI team assisted the Department of Finance (DOF) in drafting comprehensive tax reform, including tax policy and administration. FPI continues to assist the DOF as the proposed reform goes through parliamentary debates and to facilitate numerous public-private policy dialogue events on the proposed changes.

Since introducing electronic BIR forms in 2015, the Philippines government has seen the popularity of its electronic tax-filing option soar—from 1.9 million electronic returns in 2014 to 17.4 million in 2016. While only certain taxpayers were mandated to use e-filing, the BIR reported increased e-filing across all taxpayer categories as Filipinos found the new eBIRForms system to be stable and reliable.

Complementing its work on the revenue side, FPI is also ramping up its assistance to the Department of Budget and Management (DBM), including:

  • Supporting passage of a new Budget Law, currently filed for parliamentary discussion, that will establish a performance-based-budgeting process
  • Preparing a new Budget Manual
  • Developing a comprehensive system for monitoring and evaluating expenditures
  • Improving government procurement processes
  • Advising on budget decentralization
  • Engineering business processes related to budget preparation and execution
  • Supporting the Philippines’ Open Government Partnership

Homegrown Revenues for Development

The Philippines’ achievement exemplifies an encouraging trend of developing countries undertaking fiscal reforms to increase their domestic resource mobilization. At the July 2015 Third International Conference on Financing for Development in Addis Ababa, Ethiopia—attended by more than 110 heads of state, ministers, and officials from 38 countries—donors such as USAID and the U.K. Department for International Development pledged a doubling of assistance by 2020 for programs to mobilize domestic revenues.

Stepping up domestic resource mobilization, the Addis attendees agreed, “is core to ensuring solid financing of the Post-2015 Development Agenda. [While] domestic public resources are a more stable and sustainable source of income, they also strengthen a legitimate relationship between citizens and the state and foster good governance.”

When the Philippines first attempted to introduce e-filing 17 years ago, it was one of just a few countries using the method. Electronic filing and payments seemed like a perfect solution for a country with a population dispersed across more than 7,000 islands. However, e-filing was never adopted in significant numbers due to persistent technical issues and the e-system’s complicated design.

Faced with an unstable e-filing system and impending April 15 filing deadline, many taxpayers simply did not file or pay their taxes. In mid-2015, FPI provided a new design to the BIR that made e-filing readily available, convenient, and scalable. Compared to the old system or manual filing using paper returns, the new system has greatly improved taxpayer service and compliance. For taxpayers who need in-person service, waiting lines in regional tax administration offices have been reduced by hours.

Beyond Hardware and Software

It takes more than rolling out new hardware and software to bridge a country’s fiscal gaps. FPI led a nationwide public awareness campaign, worked with mobile payment providers and local banks to expand channels and locations for tax payments, and intensively promoted good governance and anti-corruption transparency initiatives.

And of course there is always an opportunity to scrutinize how you spend the money that is raised, and spend it more wisely. For example, FPI’s technical assistance to the DBM streamlined key internal business processes and helped identify the opportunity to free up $500 million within the 2016 national government budget. Collectively, FPI’s activities have helped expand the Philippines government’s “fiscal space” for investing domestically in its own development, a result we are confident will endure beyond the life of the project.