Eastern Western

By Global Tax Weekly

A re-run of the classic tax western is taking place in the Philippines, in which the bad guys want to raise taxes in all directions while the good guy (Ronald Reagan?) believes that reducing tax rates will result in more tax being paid. The part of the Gipper is being played by Juan Edgardo “Sonny” Angara, who wants to cut the country’s 30 percent corporate tax rate (the highest in South-East Asia), while tax professionals gasp with horror, needless to say. Well, how’s about some facts? In April, the Philippines Department of Finance disclosed a 26 percent rise in collections of import duties, taxes and fees in the first quarter of the year. In money terms that’s equivalent to USD500m (USD2bn annualized), while our hero predicts a loss of just USD160m in corporate tax receipts in the first year of his rate reduction program. Last year there was a primary surplus, and the full deficit was just 1.4 percent of GDP, less than forecast. The increase in customs collections is probably mostly due to the so-called “sin tax” package, whose main component was a quite savage increase in excise taxes on locally-produced hooch, forced on the country by the WTO after a long battle to level the playing field with over-taxed alcohol imports. That’s to say, the increase is no flash in the pan, but is likely to be permanent. The one thing the tax-increasers have on their side, sort of, is that total tax collections amounted to 13.4 percent of GDP last year, up from 12.9 percent in 2012, due to a combination of increased collection efficiency and those sin tax increases. This is one of the lowest percentage figures in the region, or anywhere, and as in other less-developed countries such as Pakistan it is due to the fact that tax-paying is largely voluntary for the professional classes. The President, the benign Benigno Aquino, has set his face against mainstream tax increases, and is waging war against corruption. This seems to be exactly the medicine that is required and is already paying dividends. So we are on the side of the good guys: cut tax rates, root out corruption, and turn a deaf ear to the IMF.

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