Corporate tax take least efficient among ASEAN peers despite high rates, Finance department says
THE government’s collection efficiency for corporate tax was by far the worst in comparison with three other emerging economies in the Association of Southeast Asian Nations (ASEAN), despite having the highest tax rates, the Department of Finance (DoF) said.
At a corporate income tax (CIT) rate of 30%, the DoF said that the government’s collection eff iciency is only 12%, or equivalent to 3.7% of gross domestic product (GDP).
Collection eff iciency is actual collections against GDP, divided by the corporate tax rate.
“We have the classic problem of a high rate but narrow base. That is why the eff iciency is problematic,” Finance Undersecretary Karl Kendrick T. Chua was quoted in a statement as saying.
The DoF said that there are about 360 laws — 150 investment laws and 210 non- investment laws — that grant tax breaks to businesses.
This compares with Thailand’s 30.5% efficiency, with collections generating 6.1% of GDP, at a corporate tax rate of 20%.
Vietnam meanwhile recorded 29.2% efficiency, raising 7.3% of GDP, at a 25% corporate tax rate.
Malaysia’s 27.1% efficiency rate produces collections equivalent to 6.5% of GDP, off a 24% corporate tax rate.
“Despite a 30% rate, we are at the bottom in terms of revenue eff iciency,” Mr. Chua said.
The DoF is preparing to submit to the House of Representatives the second package of the comprehensive tax reform program that seeks to reduce the corporate tax rate to 25% this month.
The package will also seek to rationalize incentives for companies, making them “performancebased, targeted, time-bound, and transparent,” Mr. Chua said.
“Through this proposal, the government will be able to ensure that incentives granted to businesses generate jobs, stimulate the economy in the countryside and promote research and development; contain sunset provisions so that tax perks do not last forever; and are reported so the government can determine the magnitude of their costs and benefits to the economy,” the DoF said.
Under the Philippine tax code, all corporations, unless receiving fiscal incentives, have to pay a regular tax rate of 30% or a minimum of 2% of gross income beginning the fourth taxable year immediately following the year in which a corporation commenced its business operations, when the minimum income tax is greater than the regular tax.
The DoF said that the second package will be “revenue- neutral,” as the cut in corporate tax rates will be compensated by the withdrawal of some incentives granted by investment promotion agencies (IPAs).
Republic Act No. 10708, or the Tax Incentives Management and Transparency Act (TIMTA), has allowed the government to identify the companies receiving the biggest incentives and their impact on the economy.
The TIMTA study shows that among the country’s 13 IPAs, the Philippine Economic Zone Authority ( PEZA) accounts for the bulk of the incentives, followed by the Board of Investments.
Among incentives that the PEZA grants include a 100% exemption from corporate income tax, tax and duty- free importation of raw materials, exemption from wharfage dues, and all local government imposts, on top of non- fiscal incentives. —