Manila faces big hur­dles in fol­low­ing Jakarta’s tax amnesty

New Straits Times - - Business -

MANILA: Weeks af­ter In­done­sia re­ported net­ting more than US$10 bil­lion (RM43.4 bil­lion) from a tax amnesty, the Philip­pine gov­ern­ment said it’s mulling a sim­i­lar move. Im­ple­ment­ing it may not be that easy.

In In­done­sia, the amnesty gave in­di­vid­u­als a re­prieve from pros­e­cu­tion if they came clean on un­re­ported in­come or hid­den as­sets abroad. The Philip­pines is con­sid­er­ing a more tar­geted approach — fo­cused on those avoid­ing pay­ing taxes on prop­erty, es­tates and in­come — and only plan to adopt it once au­thor­i­ties beef up tax com­pli­ance.

Pres­i­dent Ro­drigo Duterte needs the ad­di­tional rev­enue to fund his am­bi­tious in­fra­struc­ture pro­gramme but he has limited re­sources in a coun­try where tax avoid­ance is ram­pant: only about 15 per cent of the 100 mil­lion pop­u­la­tion are reg­is­tered as tax­pay­ers. The pre­vi­ous ad­min­is­tra­tion es­ti­mated lost rev­enue due to eva­sion at about US$10 bil­lion a year.

Here are some rea­sons why the Philip­pines isn’t close to im­ple­ment­ing a tax amnesty yet:

„ Bank Se­crecy Law

Of­fi­cials are hob­bled by a law that pro­hibits the dis­clo­sure of or in­quiry into bank de­posits. There are only a few ex­emp­tions such as im­peach­ment and court cases. The law, a legacy from the 1950s, was com­pa­ra­ble to sim­i­lar statutes in Switzer­land and Le­banon, said the Philip­pines’ Na­tional Tax Re­search Cen­tre in a paper last year. Bills filed in Congress seek to ease these re­stric­tions.

„OECD Stan­dard

The Au­to­matic Ex­change of In­for­ma­tion ar­range­ment by the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment (OECD) was a key rea­son for the suc­cess of In­done­sia’s tax amnesty. Un­der the agreement, signed by Sin­ga­pore and In­done­sia but not by the Philip­pines, coun­tries will start in 2018 to share de­tails of their na­tion­als that hold bank ac­counts in other coun­tries with­out the need for spe­cific re­quests.

That pre­sented a “cred­i­ble threat” to tax­pay­ers in In­done­sia, prompt­ing them to com­ply to avoid pros­e­cu­tion in fu­ture, said Michael Wan, an econ­o­mist at Credit Suisse Group AG in Sin­ga­pore.

Tax­pay­ers in the Philip­pines don’t have a sim­i­lar threat, he said, re­duc­ing their in­cen­tive to come clean.

„ Fis­cal Pri­or­i­ties

The Philip­pines is pur­su­ing a re­vamp of tax laws — in­clud­ing rais­ing taxes on cars and fuel while low­er­ing some du­ties — in or­der to gen­er­ate an es­ti­mated 163 bil­lion pe­sos (RM14.33 bil­lion) a year in rev­enue. Fi­nance Sec­re­tary Car­los Dominguez has said he is con­fi­dent the first of the bills will be passed by about Oc­to­ber.

“The pos­si­bil­ity of a tax amnesty will de­pend on when the first tax re­form pack­age will be passed,” said Eu­ge­nia Vic­torino, an econ­o­mist at Aus­tralia & New Zealand Bank­ing Group in Sin­ga­pore. “The De­part­ment of Fi­nance has made it clear that it won’t pur­sue other tax mea­sures un­less that is passed.”

„Past Amnesties

The Philip­pines has a long his­tory of failed tax amnesties, ac­cord­ing to Credit Suisse’s Wan. It raised rev­enue equiv­a­lent to one per cent of gross do­mes­tic prod­uct (GDP) in 1973 with other amnesties col­lect­ing only a frac­tion of that.

In the lat­est amnesty in 2007 to 2008, the gov­ern­ment col­lected less than 0.1 per cent of GDP worth of rev­enue, ac­cord­ing to Credit Suisse.

Law­mak­ers are cur­rently con­sid­er­ing a bill granting amnesty for es­tate taxes and are work­ing on other bills, in­clud­ing a re­prieve on un­paid taxes from Jan­uary 2006 to June 2016.

“While we could see some pos­i­tive im­pact on the per­cep­tion of our abil­ity to col­lect taxes with a one-time is­suance of an amnesty, I think mar­ket par­tic­i­pants will want to see how the amnesty is go­ing to be part of a bigger plan to re­form a very leaky tax sys­tem,” said Emilio Neri Jr., lead econ­o­mist at Bank of the Philip­pine Is­lands, here. Bloomberg

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