Philippines Urged to Change Tax Balance

May 11, 2010 Taxation in Philippines

Palacio del Gobernador 2Corporate and personal income taxes in the Philippines should be lowered to 25 percent, and Value Added Tax (VAT) raised to 15 percent, according to the Department of Finance (DOF) of the Philippines.

On May 10th the DOF issued a general statement to the next Government administration coming into power after the national elections, saying that the current national tax balance should be changed. The DOF claimed that PHP 73.92 billion could be raised if the recommended changes are carried out by the year 2015. The DOF suggested that VAT should be raised from the current level of 12 percent to 15 percent, personal and income taxes lowered to 25 percent, along with simplification of the personal income tax assessment structure and excise taxation on tobacco and alcoholic products. The DOF also stated that the next Government should pursue further privatization of Government assets for increased efficiency and cost reductions.

Margarito Teves, Finance Secretary of the Philippines, conceded that the upcoming Government is not bound to follow the advice, but added that the DOF is recommending measures aimed at increasing national fiscal stability. He elaborated on the suggestions further, pointing to the various ways in which the advice could be implemented. While a sudden change in rates will yield the most significant results, a gradual increase in VAT with matching decreases in both forms of income tax would lead to a neutral impact on taxpayers, with great levels of efficiency. An incremental approach would also ensure the all changes are calibrated to have fair and equal effects across all sectors and income levels throughout each step of the process.

The current Government administration’s term is scheduled to finish on June 30th 2010, following the May 10th national elections. The current Finance Secretary has already appealed to the upcoming congress to hold a review of possible VAT reforms and exemptions, to ensure that all tax changes will be carried out in the highest possible level of efficiency.

Photo by Jun Acullador