Alternatives to Debt financing in the Philippines

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Alternatives to Debt financing in the Philippines

4 June by Eduardo C. Tadem

Photo credit : Sushovan Dhar

A. Sources of Funds for Additional Government Revenues

Wealth Tax

Thomas Pikkety (Capital in the 21^st Century. 2014: 540):

There are two main ways for a government to finance its expenses: taxes and debt. In general, taxation is by far preferable to debt in terms of justice and efficiency. The problem with debt is that it usually has to be repaid, so that debt financing is in the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of those who have the means to lend to the government. From the standpoint of the general interest, it is normally preferable to tax the wealthy rather than borrow from them.

A wealth tax is a form of progressive taxation that is imposed on the wealth possessed by individuals and is based on the market value of owned assets minus debts and other liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). , in other words, one’s net worth.
A wealth tax covers wealth in all its forms, i.e., anything tangible or intangible that has monetary value.
These include, but are not limited to, cash, landholdings, bank deposits, shares of stocks, personal vehicles, real property, pension plans, money funds, owner-occupied housing, trusts, jewelry, yachts, planes, works of art, antique collections, copyrights, etc.

Philippine Wealth Tax Proposals
Proponent	Number covered	Net worth	Tax Rates	Est. Amount
Akbayan Party HB 11127	50 richest individuals	P300M-P2.5B+	1.5% - 3%	P138.45B
Makabayan Bloc HB 10253	50 richest individuals	P1B – P3B	1% - 3%	P237B
Laban ng Masa	250-500 persons	Above P100M	1% - 3%	P316B – P1 trillion
Ibon Foundation	2,000 persons	P1B to P3B	1% - 3%	P224B – P467B
Third World Network		P300M – P2.5B	2% - 3.75%

FOREGONE REVENUES

The automatic debt appropriations that took up from 28% to 32% of the government budget from 2020-2024.

Automatic Appropriations for Debt Service Debt service The sum of the interests and the amortization of the capital borrowed. (2020–2024)

Year	Total Debt Service (PHP)	% of National Budget	Breakdown
2020	₱1.03 trillion	28.4% of ₱4.1T budget	Interest: ₱452B_ Principal: ₱578B
2021	₱1.23 trillion	30.1% of ₱4.5T budget	Interest: ₱520B_ Principal: ₱710B
2022	₱1.31 trillion	29.3% of ₱5.0T budget	Interest: ₱582B_ Principal: ₱728B
2023	₱1.60 trillion*	30.0% of ₱5.3T budget	Interest: ₱670B_ Principal: ₱930B
2024	₱1.91 trillion (proposed)	31.6% of ₱5.8T budget	Interest: ₱699B_ Principal: ₱1.21T

TOTAL AUTOMATIC APPROPRIATIONS (2020-2024) = P7.1 TRILLION

Tax breaks enjoyed by corporations (tax holidays, reduced income tax rates and duty exemptions)

Estimated Tax Breaks for Corporations (2020–2024)

Year	Estimated Tax Expenditures (Foregone Revenue)	Major Incentives
2020	₱441 billion	Income tax holidays (ITH) Special Economic Zone perks (5% GIE) VAT exemptions
2021	₱477 billion	CREATE Act reduced corporate income tax (CIT) from 30% to 25% Extended tax holidays for exporters
2022	₱520 billion	CIT further reduced to 20% for MSMEs Enhanced deductions (R&D, labor)
2023	₱540–600 billion	Expanded incentives for strategic sectors (IT-BPM, renewables) Customs duty exemptions
2024	₱600–650 billion (projected)	Continued CIT reductions New incentives under Maharlika Investment Fund Investment fund Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.

TOTAL TAX BREAKS (2020-2024) = P2.6 trillion

Foregone tariff revenues from free trade agreements (FTAs).

Estimated Foregone Tariff Revenues from FTAs (2020–2024)

Trade Agreement	Estimated Annual Foregone Tariffs (PHP)	Key Duty-Free/Reduced-Tariff Imports
ASEAN Trade in Goods Agreement (ATIGA)	₱25–35 billion/year	Electronics, auto parts, agricultural products
Japan-PH Economic Partnership Agreement (JPEPA)	₱10–15 billion/year	Auto parts, electronics, machinery
PH-EU Generalized Scheme of Preferences Plus (GSP+)	₱5–8 billion/year	Garments, processed foods, machinery
PH-China Free Trade Agreement (Under RCEP)	₱15–20 billion/year (since 2023)	Steel, electronics, consumer goods
Regional Comprehensive Economic Partnership (RCEP)	₱20–30 billion/year (since 2023)	Agricultural products, chemicals, textiles
PH-South Korea FTA	₱3–5 billion/year	Electronics, auto parts, petrochemicals
PH-Germany Double Taxation Agreement (DTA) (Indirect tariff effects)	Minimal (mostly affects corporate taxes)	Capital goods, industrial equipment

Total Estimated Foregone Tariffs (2020–2024): ₱250–350 billion (cumulative over 5 years)

Unspent government funds of P1.77 trillion from 2020 to 2024.

Unspent Government Funds (2020–2024)
(In billion PHP, based on COA Annual Audit Reports & DBM data)

Year	Total Budget	Unspent Funds	% of Budget	Key Reasons for Unspent Funds
2020	₱4.1 trillion	₱389 billion	9.5%	Pandemic disruptions delayed projects Slow procurement (e.g., DOH COVID funds)
2021	₱4.5 trillion	₱420 billion	9.3%	Low agency absorptive capacity Unreleased funds for infrastructure (DPWH)
2022	₱5.0 trillion	₱450 billion	9.0%	Election ban on spending (Q2 2022) Unused ’Bayahihan 2’ allocations
2023	₱5.3 trillion	₱510 billion*	9.6%	Delays in flagship projects (e.g., ’Build Better More’) Unspent funds in DepEd, DOTr
2024	₱5.8 trillion	(Projected) ₱500–600B	10%	Likely due to slow start of new programs Bureaucratic bottlenecks

Cumulative Unspent Funds (2020–2023): ₱1.77 trillion
(Equivalent to roughly 9–10% of annual budgets left unused each year)

Illicit inflows of capital and merchandise through misinvoicing of imported goods

Estimated Trade Misinvoicing in Imports (2020–2024)

(Value gaps between PH-reported imports and partner-country exports)

Year	Total Imports (PHP)	Estimated Misinvoicing (PHP)	% of Imports	Likely Purposes
2020	₱7.9 trillion	₱470–600 billion	6–7.6%	Tariff evasion, capital flight
2021	₱9.1 trillion	₱550–700 billion	6–7.7%	Undervaluation of electronics, minerals
2022	₱10.4 trillion	₱620–800 billion	6–7.7%	Over-invoicing of fuel, machinery
2023	₱11.2 trillion	₱670–850 billion	6–7.6%	Misdeclared Chinese imports (e.g., steel, textiles)
2024*	₱12.0 trillion*	₱700–900 billion*	6–7.5%	Rising RCEP-related trade discrepancies

Cumulative (2020–2024): ₱3–3.8 trillion in illicit flows via misinvoicing.

Revenues lost from smuggling

Estimated Revenue Losses from Smuggling (2020–2024)

(In billion PHP, covering uncollected tariffs, VAT, and excise taxes)

Year	Total Estimated Smuggling Value	Revenue Loss (Customs + VAT + Excise)	Top Smuggled Goods
2020	₱300–400 billion	₱90–120 billion	Fuel, cigarettes, rice
2021	₱350–500 billion	₱110–150 billion	Electronics, luxury cars, sugar
2022	₱400–600 billion	₱130–180 billion	Steel, synthetic resins, cigarettes
2023	₱450–700 billion	₱150–220 billion	Chinese textiles, e-cigarettes, onions
2024*	₱500–800 billion*	₱170–250 billion*	Agri products, fuel, counterfeit goods

Cumulative Loss (2020–2024): ₱650–920 billion in uncollected revenues.

Tax liabilities of 267 cases filed from 2020-2024

BIR Tax Evasion Cases (2020–2024)

Year	Cases Filed	Total Tax Liabilities (PHP)	Top Sectors Targeted	Convictions/Outcomes
2020	56 cases	₱12.8 billion	Real Estate, Online Sellers, Professionals	3 convictions, ₱420M recovered
2021	49 cases	₱9.5 billion	E-commerce, Construction, Luxury Goods	2 convictions, ₱380M recovered
2022	62 cases	₱15.2 billion	Digital Services, Mining, Retail	5 convictions, ₱1.1B recovered
2023	70 cases	₱18.6 billion	Crypto Traders, Importers, Restaurants	4 convictions, ₱950M recovered
2024*	30 cases (as of mid-2024)	₱8.3 billion*	Online Gaming (POGOs), Logistics, Consultants	Pending trials

Total (2020–2024):

267 cases filed
₱64.4 billion in alleged tax liabilities
14 convictions (₱2.85B recovered)

Losses due to corrupt practices by government bureaucrats, politicians and their allies

Annual Corruption Losses vs. National Budget

(Estimates as a percentage of the annual budget)

Year	National Budget (PHP)	Estimated Corruption Losses	% of Budget	Major Corruption Cases
2020	₱4.1 trillion	₱328–615 billion	8–15%	PhilHealth fund diversion (₱15B), DPWH overpricing
2021	₱4.5 trillion	₱360–675 billion	8–15%	DOH pandemic procurement irregularities (₱42B in COA flags)
2022	₱5.0 trillion	₱400–750 billion	8–15%	Election-related fraud, DPWH ’ghost projects’
2023	₱5.3 trillion	₱424–795 billion	8–15%	PNR railway fund anomalies, agricultural smuggling
2024	₱5.8 trillion	₱464–870 billion*	8–15%*	Ongoing probes into POGO-linked bribes, infrastructure kickbacks

Cumulative (2020–2024): ₱2–3.7 trillion lost to corruption (≈ 8–15% of total budgets).

Payments shouldered by government from “sovereign guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). ” to foreign -owned or joint-venture firms to offset income losses or to pay bills.

Examples: P3.5 billion to Maynilad; P70 billion to Manila Water; P2.05 billion to Texas Instruments; P1.25 billion to Hanjin Industries; P1.45 billion to Phoenix Semiconductors, etc

Sovereign Guarantee Payouts (2020–2024)

(In billion PHP, covering energy, PPPs, and corporate bailouts)

Year	Project/Company	Payment (PHP)	Reason	Source of Funds
2020	Malampaya Gas Project (Shell-Chevron)	₱12.5B	Tax disputes, cost recovery	DOF-BTr
2021	GNPower Kauswagan Coal Plant (Aboitiz-Ayala)	₱9.8B	Delays, off-take guarantees	National Treasury
2022	NGCP (National Grid Corp.) (State Grid China-JV)	₱15.2B	Transmission revenue shortfalls	2022 GAA
2023	Meralco Power Supply Agreements (MVP Group)	₱22.0B	Emergency generation cost coverage	DOE Subsidies
2024	Kaliwa Dam Project (China Energy-JV)	₱18.0B* (projected)	Loan default risk guarantee	Official Development Assistance ODA Official Development Assistance Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs. (ODA)

Total (2020–2024): ₱77.5 billion in sovereign guarantee payouts.

Interest payments of 20 illegitimate debts mentioned in the 2017 and 2018 General Appropriations Act – P1.8 trillion

11. The uncollected illegal wealth of the dictator Marcos Sr.: P292 billion and the unpaid estate taxes of the Marcos family P200 billion. Total: P490 billion

Total Wealth Tax plus

2024-2025 Foregone Revenues

P22.57 trillion (est.)

92% of 5-year government budget

319% of total debt service payments