US$400 million ADB loan to boost Philippines’ revenue mobilisation

US$400 million ADB loan to boost Philippines’ revenue mobilisation

The Asian Development Bank (ADB) has approved a US$400 million loan to help the Philippines achieve its medium-term fiscal strategy and finance its post-pandemic economic recovery through a stronger focus on revenue mobilisation, including modernizing tax administration, systems, and processes.

The Domestic Resource Mobilisation (DRM) Program Subprogram 1 is ADB’s first policy-based loan dedicated to DRM reform. It addresses the country’s need to tackle discrepancies in tax policy frameworks to boost tax compliance, reduce tax avoidance, and raise more revenues from activities and products that have a major impact on the environment or contribute to climate change.

“The program recognises that DRM reforms necessitate not only raising revenue, but also designing a revenue system that fosters inclusiveness, encourages good governance, promotes investments and job creation, reduces inequality, and tackles climate change,” said ADB Senior Economist for Public Finance Aekapol Chongvilaivan. “ADB supports the government’s DRM program, which will result in a higher tax-to-gross domestic product (GDP) ratio and ensure sustainable financing for the country as it sets out to achieve its goals under the Philippine Development Plan (PDP) 2023‒2028.”

The Philippines wants to raise its tax-to-GDP ratio from 15.0 per cent of GDP in 2020 to at least 15.9 per cent of GDP by 2026, as stated in the PDP 2023–2028, to slowly narrow the gap with the 17.6 per cent average ratio of its Asia and Pacific neighbours.

Among the reforms pursued by the government in line with the DRM program is the Digital Transformation Initiative of the Bureau of Internal Revenue. The project aims to modernise key taxpayers’ services, including online tax registration, return filing, and payment. This can potentially increase the ratio of actual tax revenues to tax potential, from 75 per cent in 2020 to at least 85 per cent by 2026. 

The DRM Program helped the government implement various international tax standards under the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting and the Global Forum on Transparency and Exchange of Information to address international tax avoidance. The Philippines this month joined the OECD/G20 Inclusive Framework, committing to global tax standards and progressive tax reforms that will make the country more conducive to private sector development and foreign investment.

ADB has been engaging with the Philippines on DRM through policy dialogue, consulting services, and knowledge work. It is supporting the government’s Real Property Valuation and Assessment Reform to strengthen its property valuation functions and modernise real property taxation, which accounts for 30 per cent of local government units’ own-source revenues. ADB also provided technical advice in the formulation of the Comprehensive Tax Reform Program packages from 2016 onwards.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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