ADB approves $400M loan for PH

THE Asian Development Bank (ADB) has approved a $400-million loan to strengthen the government’s revenue mobilization.

In a statement on Tuesday, the Manila-based lender said the loan would help the country achieve its medium-term fiscal strategy and finance its post-pandemic economic recovery through modernizing tax administration, systems and processes.

The Domestic Resource Mobilization (DRM) Program Subprogram 1 — the ADB’s first policy-based loan dedicated to DRM reform — emphasizes the need to address discrepancies in tax policy frameworks.

The Bank said this would boost tax compliance, reduce tax avoidance, and raise more revenues from activities and products impacting the environment.

“The program recognizes 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,” ADB Senior Economist for Public Finance Aekapol Chongvilaivan said.

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“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,” Chongvilaivan added.

ADB noted that the government is eyeing to raise its tax-to-GDP ratio from 15.0 percent of the gross domestic product to at least 15.9 percent by 2026. It aimed to slowly narrow the gap with the 17.6-percent average ratio of its Asia and Pacific peers.

The Digital Transformation Initiative — established by the Bureau of Internal Revenue in line with the DRM program — aims to modernize various financial services such as online tax registration, return filing, and payment.

ADB said this could increase the ratio of actual tax revenues to tax potential by at least 85 percent in 2026.

The DRM Program helped the country fulfill some international tax standards under the Organization 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.

Earlier this month, the Philippines joined the OECD/G20 Inclusive Framework, pledging to follow global tax standards and implement progressive tax reforms to enhance the country’s appeal for private sector growth and foreign investment.

The Bank said it has been closely engaging with the Philippines about 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 modernize real property taxation, which accounts for 30 percent of local government units’ own-source revenues,” it said.

“ADB also provided technical advice in the formulation of the Comprehensive Tax Reform Program packages from 2016 onwards,” it added.