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Philippines: Incentives hinder efficiency in tax collection — DOF exec
MANILA, Philippines — The government’s efficiency in collecting corporate income taxes is suffering due to the grant of fiscal incentives and perks to various industries, according to a high ranking official of the Department of Finance (DOF).
In a statement, Finance Undersecretary Karl Kendrick Chua said the Philippines, despite having one of the highest corporate income tax rates in the region, remains among those with the lowest collection efficiency in terms of corporate taxes.
According to Chua, the Philippine government imposes a corporate income tax rate of 30 percent. But income tax collections from large corporations and other private entities represent only 3.7 percent of the country’s gross domestic product (GDP) and a tax collection efficiency rate of only 12.3 percent.
“A flawed and outdated system that provides tax incentives to companies under 150 investment laws and 210 non-investment laws is the reason for the country’s low corporate income tax collection efficiency,” Chua said.
Chua compared the country to Thailand, which has a corporate income tax rate of only 20 percent, but has an efficiency rate of 30.5 percent, equivalent to 6.1 percent of its GDP.
Meanwhile, he said Vietnam’s corporate income tax rate is only at 25 percent, but its collection accounts for 7.3 percent of its GDP, with a tax efficiency rate of 29.2 percent. Malaysia’s 24 percent corporate income tax rate also generates a 27.1 percent efficiency rate, which is 6.5 percent of GDP.
“So clearly, we have the classic problem of a high rate but narrow base. That is why the efficiency is problematic,” Chua said.
Following the enactment of the Tax Reform for Acceleration and Inclusion Act, the DOF is preparing to submit the second package of the Comprehensive Tax Reform Program, which focuses on the reduction of corporate income tax rates, while rationalizing fiscal incentives.
The DOF is targeting to submit this revenue-neutral proposal to Congress this month.
Chua said the tax package proposes to lower the corporate income tax rate to 25 percent, while rationalizing incentives for companies to make these “performance-based, targeted, time-bound, and transparent.”
He said through the measure, the government ensures that incentives granted to businesses generate jobs, stimulate the economy, promote research and development.
The second package of the tax reform program also imposes sunset provisions on tax perks and require corporations to report their incentives to the government, which will determine the magnitude of their costs and benefits to the economy, he said.
Source: http://beta.philstar.com/business/2018/01/10/1776203/incentives-hinder-efficiency-tax-collection-dof-exec#iHWuvkDEaHpMBPc4.99