PH tax system turns off foreign investors – Binay

MANILA, Philippines – The current tax system of the Philippines is uninviting to foreign investors, Vice President Jejomar C. Binay said Wednesday, October 7 during the open forum at the 4th Deutsche Bank Access Philippines Conference in Makati City.

“The Philippines currently has the second highest personal income tax rate (32%) and the highest corporate income tax rate (30 %) among its ASEAN (Association of Southeast Asian Nations)-6 peers. This makes the country’s tax system uninviting as the region moves toward economic integration,” Binay said.

Rappler published on October 1 a report on how the country’s 19-year-old personal and corporate income tax systems of the Philippines are the “most uninviting and out of date” among ASEAN) economies. (READ: Why PH has 2nd highest income tax in ASEAN)

Reduce corporate income tax

In a statement on September 23, various groups such as foreign business chambers representing Europe, the US, Japan, and Canada; and the Management Association of the Philippines expressed their “support for the for various income tax reform measures pending in Congress to restore fairness in the Philippine tax system.” (READ: Big business groups to Aquino: Reform taxes)

Binay, the opposition standard-bearer said on Wednesday, shared the view and said that reduced corporate income tax rates will entice foreign investors to do business in the Philippines.

He added that the government should gradually, or within 5 years, reduce the current corporate income tax rate from 30% to a more realistic and reasonable rate that is consistent with the country’s ASEAN peers.

In the long-term, lower income tax rates will draw more foreign investments, leading to more jobs and more revenues for the government, he added.

Binay  also acknowledged that while the overhaul of the income tax system is estimated to cost the government P30 billion ($649.16 million) per year, the amount is only a little less than 1% of the P3 trillion ($64.90 billion) proposed 2016 national budget and about 0.23% of the Gross Domestic Product (GDP).

“The amount is also less compared to the government’s estimated underspending of P500 billion ($10.83 billion) in 2015,” he said.

No to VAT increase

Binay also opposed the Bureau of Internal Revenue’s proposal to raise the current value added tax (VAT) from 12% to 14% to compensate the loss to be incurred from lower tax rates. (READ: Lower income tax rates? Aquino ‘not convinced’ it’s good idea)

“The Philippines already has the highest VAT rate in the region. Increasing VAT should only be a last resort. Raising VAT would defeat the goal of allowing our countrymen to enjoy more of their hard-earned money,” he said.

Binay pointed out that lowering tax rates will let consumers spend more, and the government will recover some of the short-term revenue loss through increased consumption taxes, such as VAT, without necessarily increasing it.

Instead of being fixated on VAT, Binay said the government should look at a menu of options, including:

• Improved tax collection efficiency
• More aggressive campaign to catch tax evaders
• Slide scale on excise tax covering gas, diesel, and other oil products
• Sale of government assets and privatization of select government-owned and controlled corporations
• Revenue-generating measures
• Stronger crackdown on smugglers

Burden to individual taxpayers

Binay added that because of more lenient and reasonable income tax rates in other countries in the region, some talented Filipinos have chosen to live and work abroad, resulting in “brain drain” in the country.

“The current tax system puts too much burden on working-class taxpayers and very little on well-off individuals. Up to 85% of the total collection of individual income taxes is paid by the working class while only 15% comes from self-employed individuals and professionals,” he said.

Binay said that passing a tax reform bill would lead to improved competitiveness of Philippine corporations and its workforce, improved tax collection and compliance, and higher revenues from a broader tax base and increased consumption taxes due to greater purchasing power. (READ: #AskTheTaxWhiz: Why push for tax reform?)

The Vice President added that the country’s tax system must be fair, and those with bigger pay checks ought to pay higher taxes than those who earn less and inflation-adjusted tax brackets. “Even if it will result in a short-term reduction of tax revenues – is only just,” he said.

Binay said that tax savings will also help Filipino breadwinners afford housing, an education plan for their children, and a retirement plan for themselves. – Rappler.com

$1 = P46.19