To complement the efforts to improve tax administration and to ensure that revenues are adequately protected, priority policy reforms need to be instituted, namely: the rationalization of the fiscal incentives system and the enactment of a fiscal responsibility law. The rationalization of fiscal incentives will save revenues for the government by doing away with redundant incentives (e.g., those directed at investments that would have taken place even with the absence of such incentives). At the same time, rationalization will allow the government to direct the incentive system at the export sector so that its full potential can be realized.
A fiscal responsibility law is necessary to hasten the fiscal consolidation process and enforce fiscal discipline at all levels of government. The fiscal position of government should be kept on an agreed deficit path. Such a law is also necessary to keep the country's debt at a manageable level.
With proper timing, other tax reforms need to be undertaken in order to improve the revenue take of the tax system while promoting equity and a level playing field for all stakeholders. Priority must be given to adjustments in the excise tax on alcohol and tobacco products, as well as the excise tax on petroleum. The use of the so-called PAYGO system as a collection handle must also be maximized.
The distortions of the tax system caused by the enactment of piecemeal exemption laws must be corrected. A reversal of these unnecessary tax exemptions must be pursued in order to restore the integrity of revenues and make the tax system more efficient and equitable.