WB Urges Philippines to Improve Tax System But No Tax Rate Increase

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The World Bank (WB) urges the Aquino administration to improve its tax system to raise more investments for the country’s economic growth. However, the WB insisted that the Philippine government does need to increase the tax rates to be able to reach its goals.

“Note that there is no need to raise tax rates, but rather to update the current tax system. This is to have better reflect market prices. The current government should study this.” World Bank senior country economist Karl Kendrick Chua said in the press conference in Taguig City this Wednesday.

“We need to shift rates lower, where we broaden the base… making fiscal incentives more targeted, more transparent, performance-driven and, finally, temporary,” Chua added, noting that the Philippines should invest more in education, health, and infrastructure to help eradicate poverty.

Currently, the Philippines is one of the countries in Asia with very high tax rates. Personal income tax rates are up to 32 percent, while corporate income tax is up to 30 percent. According to World Bank economic experts, this high-percentage tax rates should be enough to raise enough money.

In a study at the AIM Policy Center conducted last year, the Philippines landed as the Asian country with the second highest average tax rate, next to Thailand and Vietnam which both impose a 35-percent average tax rate. However, the Philippine government imposes a 12% VAT, the highest in Asia.

In addition, many local economists said they believe that middle-class Filipinos are those suffering from huge tax rates. Based on the data of the Bureau of Labor and Employment Statistics (BLES), more than 100 out of 362 professional occupations revealed to have higher applicable marginal tax rates in 2012.

“I already said this many times. With wealthy businessmen and famous local celebrities being covered with the same tax rates, the treatment to middle-class professionals is obviously unfair and should be studied thoroughly.” Economist Solita Monsod (Mareng Winnie) told TN in an ambush interview.

“This is also why some of our engineers and other professionals prefer to work abroad. Hong Kong, for example, only imposes 12% tax. And mind you, OFWs in UAE and other Middle East countries are generally income tax-free. No wonder, our Filipino workers there earn a lot.” Monsod added.

So far, some local senators have proposals on tax reforms. This includes Senate Bill 1942 by Senator Paolo Benigno “Bam” A. Aquino IV, Senate Bill 716 by Senator Ralph G. Recto, and Senate Bill 2149 by Senator Juan Edgardo M. Angara. All of them are still subject for further deliberation in the Senate.

Meanwhile, BIR Commissioner Kim Henares said she welcomes the recommendation of the World Bank with open arms. For former Bayan Muna Representative Teddy Casiño, he stressed out Filipinos in general are willing to pay higher taxes, as long as the government really provides its services effectively.

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