PH Monday Macro: Here is how the Philippines government makes money
We’ve discussed how taxes serve as a better indicator than gross domestic product (“GDP”) figures for gauging long-term economic growth, drawing an analogy between a country and a business. Similar to how a business depends on gross profit to operate and expand, a country relies on taxes to operate and grow.
Today, we will explore how the Philippines generates income
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Similar to a business, a nation cannot rely solely on GDP (in this context, akin to “revenue”) for its growth and expansion. Instead, it must leverage taxes (resembling “gross profit”) to finance public services, infrastructure development, and socio-economic programs.
So, how does a country turn a profit? While a nation doesn’t sell tangible goods or provide a service, its GDP essentially represents economic transactions. Therefore, the government imposes taxes on these transactions to fuel the country’s development and sustain its operations.
This begs the question: how does the Philippines generate revenue?
To begin, 91% of the country’s revenue comes from tax revenue. Take a look at the breakdown…
As of 2022, Bureau of Internal Revenue (“BIR”) accounted for 72.6% of total tax revenue, while Bureau of Customs (“BOC”) accounted for 26.8% of total. In comparison to GDP—the level of transactions occurring—these are around 10.6% and 4.0% respectively.
The reason why we compare these main income-generating departments to GDP is to show the efficiency and effectiveness of government revenue collection mechanisms.
Over the past six years, the Philippines has demonstrated notable progress in tax collection efficiency, as evidenced by the increasing tax revenue-to-GDP ratio. In 2017, this ratio stood at 13.6%, rising to 14.6% by 2022, representing a consistent upward trend during the intervening years. This equates to a significant 7.35% increase over the aforementioned period.
To find out why this is, you’ll have to tune in next week…
About the Philippine Markets Newsletter
“The Monday Macro Report”
When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.
Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.
Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.
Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are will make investing a less monumental task than finding a needle in a haystack.
Hope you’ve found this week’s macro chart interesting and insightful.
Stay tuned for next week’s Monday Macro report!
Regards,
Angelica Lim
Research Director
Philippine Markets Newsletter
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