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June 23, 2024

ADB approves $400 Million loan to boost Philippine tax compliance and support post-pandemic recovery

The Asian Development Bank (ADB) announced its approval of a $400-million loan last Tuesday to aid the Philippines in achieving its medium-term fiscal goals, focusing on enhancing tax compliance and reducing avoidance, with a secondary objective of financing post-pandemic economic recovery through intensified revenue mobilization, including the modernization of tax administration systems and processes.

In its first “policy-based loan” dedicated to reforming the country’s fiscal processes, the “Domestic Resource Mobilization (DRM)” program-subprogram 1 addresses the need to address discrepancies in tax policy frameworks, increase compliance, and raise revenues from activities impacting the environment or contributing to climate change.

ADB Senior Economist for Public Finance Aekapol Chongvilaivan emphasized the program’s goal to design a revenue system fostering inclusiveness, good governance, investments, job creation, reduced inequality, and climate change mitigation, expressing ADB’s backing for the government’s DRM program.

Chongvilaivan anticipates a higher tax-to-GDP ratio and sustainable financing aligned with the Philippine Development Plan (PDP) 2023-2028 goals.

The Philippines aims to increase its tax-to-GDP ratio from 15 percent in 2020 to at least 15.9 percent by 2026, narrowing the gap with regional neighbors, with ongoing reforms such as the digital transformation initiative of the Bureau of Internal Revenue.

The ADB highlighted that this initiative, focused on modernizing key taxpayer services, could potentially increase the ratio of actual tax revenues to tax potential from 75 percent in 2020 to at least 85 percent by 2026. The DRM program has supported the Philippines in implementing international tax standards under the OECD/G20 framework, addressing international tax avoidance.

Manila recently joined this framework, committing to global tax standards and progressive tax reforms.

The ADB, engaged with the Philippines on DRM through policy dialogue, consulting services, and knowledge work, supports the government’s real property valuation and assessment reform and provided technical advice for comprehensive tax reform since 2016.