Philippine revenue chief resigns amid deficit woes


President Arroyo's governmment has now been hit by three high-profile resignations in less than a month

By Rufi Vigilar

MANILA, Philippines (CNN) -- The Philippines' internal revenue chief Rene Banez has resigned, amid difficulty meeting tax collection targets to help keep a lid on the country's budget deficit.

Baez's resignation is the third to hit President Gloria Macapagal Arroyo's administration in a month and could further shake investors' perception of her government's stability and ability to meet economic targets.

The government's deficit target this year is 130 billion pesos ($2.5 billion), or 3.3% of GDP.

As of June, the country's deficit had already hit 120 billion pesos.

In a hastily called press conference Monday, Banez blamed employees in the Bureau of Internal Revenue (BIR) for undermining agency reforms by deliberately cutting back on collections in the first half of the year.

Department of Finance executive director Cora Guidote told CNN that the "obvious collusion" in the BIR -- perceived to be one of the country's most corrupt agencies, has been "deeply entrenched for years."

Just this month, the BIR discovered 4 billion pesos in undeclared taxes of more than 300 taxpayers.

The Philippines faces a possible downgrade in its international credit ratings if its deficit target -- a touchstone of economic viability -- is not met.

In a June report, London-based ratings agency Fitch maintained its stable outlook on the Philippines for the near term, but cited that the weakness in public revenues had "the most potential to trigger a ratings downgrade."

Finance Secretary Jose Isidro Camacho said that going after large corporate taxpayers will be key in meeting the government's deficit target in the second half of this year.

Spending cuts

Senator Ralph Recto, ways and means committee chair, said the the BIR needed someone with "the brains to

outwit tax evaders and the balls to go after them."

Standard & Poor's, which upgraded its outlook on the Philippines from negative to stable last April, also

cited that a huge debt burden and banks' non-performing loans may undermine the country's economic rating.

The government has begun cutting expenditures to make up for collection shortfalls.

But analysts said the government's cost-cutting measures may backfire in the long term, since spending is needed to stimulate economic growth.

Some 465 billion pesos in tax collections are expected to help justify next year's national budget of 800.7 billion pesos ($15.46 billion).

The collections make up about 73 percent of the 640.6 billion pesos in total expected revenues.