The country’s "steep” corporate income tax (CIT) remains a deterrent to higher inflow of foreign direct investments (FDI), with the Philippines failing to keep up with the faster pace of CIT drops globally, economists said.
Dr. Erlinda Medalla, Philippine Institute for Development Studies (PIDS) senior research fellow, made the observation during the Manila launch of the World Investment Report for 2015 of the United Nations Conference for Trade and Development.
The report, with the theme "Reforming International Investment Governance,” focused on two key issues: reforming the rules of international investment and coherence of international tax and investment policies.
In the context of the Philippines, Medalla noted that the uncompetitive tax system is a significant factor turning off foreign investors, and plays a part in investors’ decision to divert FDI to neighboring countries with more competitive tax regimes.
"Among the countries in Southeast Asia, we have the highest corporate income tax at 30 percent; and that is already a decline from a previous 35 percent. The trend globally is for the decline in CIT and although we’re following, we’re still lagging behind,” Medalla said.
Citing figures from Asia Briefing Ltd., Medalla pointed out that among the 13 Asian countries surveyed, the Philippines has the third-highest CIT after India and Myanmar.
"We’re still higher than most [countries] because others had faster CIT declines. If you’re an investor and the tax in the country where you put your money is among the highest in the region, it has a direct impact on the profitability; they would really choose to invest more in a place where taxes are competitive,” the economist added.
Thailand reduced its CIT rate from 30 percent in 2011 to 23 percent in 2012 and 20 percent currently. Vietnam also lowered its CIT rate from 25 percent to 22 percent this year. Senate Bill 2149 seeks to adjust the tax brackets for individual income tax and to reduce the CIT by 2 percent yearly for three years.
However, with government officials fearing the measure’s impact on the state’s coffers, lawmakers decided to defer the measure and aired doubts that it will still pass in the present Congress.
For Medalla and Philippine Institute for Development Studies President and former National Economic and Development Authority Deputy Director General Dr. Gilberto M. Llanto, reforms can be done in a measured way to balance revenue collection and attractiveness as an investment destination.
"It’s about time we do some reforms. Of course, the government is not keen on those reforms because of revenues, but they have to think of ways to compensate. Maybe they can do some studies to show that initially, revenues may go down but because of economic activities that lowering the CIT will induce, perhaps, it’s worth it,” Medalla said.//
