Tax reforms key to attracting more investments – WB

The investment gap in the Philippines could be filled by better tax administration and policy reforms, not by new taxes, the World Bank in its East Asia and Pacific Economic Update report released yesterday.

It said improvements in tax administration could generate about 3.8 percent of gross domestic product in fiscal space over the medium term to finance the investment gap.

Another three percent could come from tax policy reforms for a more equitable, efficient, and simpler tax system. For example, tax incentives need to be more targeted, transparent, performance-based, and temporary, the WB said.

The Philippines has an investment gap equivalent to 6.8 percent of GDP as of 2014.

Likewise, the WB said tax rates and valuations, which have not kept up with inflation, need to be adjusted to improve the equity of the tax system.

“The Philippines needs to accelerate reforms that can translate to higher growth into even more inclusive growth – the type that creates more and better jobs – and improve the impact of social sector spending,” the WB said.

The global financial institution forecasts the Philippine economy to expand 6.5 percent this year as government fully executes the 2015 budget that emphasizes on infrastructure spending, initiating key policy reforms, and implementing the Typhoon Yolanda master plan.

The economy grew by a strong 6.1-percent rate in 2014, the second fastest in Asia.

Already working in favor of a strong economic growth rate this year are strong remittances, falling oil prices, and upbeat consumer and business sentiments.

The key reform areas are: increasing investments in infrastructure, health, and education; enhancing competition to level the playing field; simplifying regulations to promote job creation, especially by micro and small enterprises; and protecting property rights to encourage more investments.