THE government's fiscal consolidation plan is ambitious and will likely slow over the medium term, International Monetary Fund (IMF) officials said.
"Fiscal consolidation is set to continue over the medium term, though at a slower pace than initially envisaged," IMF Mission Chief Elif Arbatli Saxegaard told reporters on Monday.
"This is driven by a slower revenue mobilization that's projected over the medium term, and at the same time, there is also a shift to higher spending on infrastructure," she added.
While this will benefit the economy, revenue mobilization is crucial to maintaining a credible medium-term fiscal consolidation strategy, rebuilding reserves, and allocating resources for poverty reduction, Saxegaard continued.
"Tax administration improvements should be supplemented with tax policy changes, notably to improve the efficiency of value-added tax and broaden the tax base," she stressed.
The IMF official said that while the Philippines can significantly increase revenue through tax administration, there is also great potential to raise revenue through tax policy adjustments.
Strengthening fiscal consolidation is vital, especially if growth slows, Saxegaard said, as sufficient revenue is essential for meeting deficit targets during economic shocks.
"[I]n a sense, revenue mobilization gives the government more flexibility to respond to shocks while at the same time reducing the deficit," she noted.
IMF Resident Representative Ragnar Gudmundsson, meanwhile, emphasized that broadening the tax base would help the government access untapped revenue potential.
He suggested the more selective granting of exemptions and incentives to ensure these contribute to economic growth. Instead of outright tax breaks, measures like faster depreciation of capital spending could be considered.
"That's one way to give a company a tax benefit while at the same time continuing to support investment," Gudmundsson said.
"So, it's really about thinking carefully about the incentives and the exemptions that you provide so that you stimulate the economy while still tapping that revenue potential."
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