IMF official calls for Package 2 approval
An International Monetary Fund (IMF) official is pushing for an early passage of the government’s tax reform Package 2, saying it will improve the overall business environment and boost the Philippines’ regional standing.
“Early approval of this reform will help the Philippines compete in the global economy,” IMF Asia and Pacific Department director Changyong Rhee said in a statement released Monday evening.
The second of five packages under the Duterte administration’s Comprehensive Tax Reform Program (CTRP) is pending before the House of Representatives following its submission in January.
Package 2 proposes to gradually lower the corporate income tax (CIT) rate to 25 percent from 30 percent while modifying tax incentives for companies to make these “performance-based, targeted, time-bound and transparent.”
Rhee said the passage of Package 2 “will again show the country’s determination to modernize its institutions; give confidence that the Philippines is committed to keep its public debt manageable, while it scales up spending on infrastructure and social programs; and show to the world that the Philippines will continue to undertake important reforms to support more inclusive growth.”
Specifically, he noted that a lower CIT rate would help attract more investments that will in turn support growth and job creation.
A modern tax incentive regime, meanwhile, will also help put businesses on a more equal footing in terms of tax payment with greater transparency and accountability.
“Today, the Philippines offers a wide range of tax incentives at a significant cost of government revenue,” Rhee noted.
The IMF official also pointed out that it was not surprising that the Philippines, while having the highest CIT rate among Asean countries, only collects around 3.8 percent of GDP from this tax— well below the regional average of 6.5 percent.
“In our view, the decision to grant tax incentives needs to be considered against the need for providing more and better public services,” he said.
With 22 million people estimated to be living in poverty as of 2015, Rhee added that a careful balance needed to be achieved between tax incentives and meeting critical spending needs on education, health care, and basic necessities.
Citing World Bank findings that one in three Filipino children under age of five is stunted because of malnutrition, he stressed that more resources are needed to help these children and meet the government’s commitment to significantly reduce poverty rate by 2022.
Moreover, he said the second phase of tax reform would help spread tax burdens more evenly.
“The current high CIT rate acts as a disincentive to businesses not receiving tax incentives, who are effectively subsidizing the current recipients of incentives,” he added.
The IMF official continued that a more equitable corporate tax system would help strengthen competition among businesses and encourage overall investment in the Philippines more broadly.
The reform will simplify tax incentives and make them more transparent, he said, noting that there are now over 220 laws that provide tax perks and 14 government agencies that have the authority to grant incentives.
The planned reform would centralize the system and set clearer and uniform criteria for granting tax perks to help achieve more inclusive growth and faster poverty reduction, he added.
Rhee also mentioned that ongoing reforms to streamline government regulations should help address some of the concerns over the rationalization of incentives.
“In summary, the second package of tax reform represents a major step forward in modernizing corporate taxes in the Philippines,” he said.
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