IF the Philippines does not adjust its outdated taxation system, the country will find itself at a disadvantage when the Asean economic integration begins to fully kick in, the European Chamber of Commerce of the Philippines (ECCP) warned on Thursday.
ECCP president Michael Raeuber said the Philippine government needs to adjust the tax rates imposed on individuals and companies to ensure that the country remains competitive with its neighbors in the Association of Southeast Asian Nations.
“We have to bring the Philippines forward. The government now has limited time to approve economic legislation and institute reforms. If we do not address the issue now, companies will be going to Vietnam and not here,” Raeuber said.
“The ECCP has been encouraging European businesses to invest in the Philippines. We are also working closely with Philippine exporters not just to Europe but to other countries. There is a need to see some action,” he said.
He stressed that there are companies that want to leave China and are now eyeing Vietnam as their preferred destination.
According to Raeuber, the country must be competitive enough by offering the right set of incentives and tax system.
The ECCP appears to have found an ally in Marikina Rep. Romero Quimbo, who said the country is a much costlier place for investments compared to its neighbors in the region.
“The cost of doing business in the Philippines is higher than in competing countries in the region. With Asean integration starting soon, it makes good economic sense to completely overhaul our corporate and individual income taxes in order to be competitive,” Quimbo said.
The chairman in the House of Representatives’ Ways and Means Committee said the government has less than four months in the legislative calendar to correct the issue while adding that there has always been a tug-of-war with the Department of Finance over the country’s tax rates.
Quimbo noted that tax bracket rates have not been adjusted since 1997, with 86 percent of income taxes being shouldered by only 16 percent of the population.
“We will be losing out to Thailand, Vietnam, and Cambodia,” he said, if the country’s tax rates are not updated to be competitive with those of other countries in the region.
Quimbo said the country has to grow economically by at least 6.40 percent annually to slow down poverty. He said the country’s poverty incidence is at 23 percent, very high compared to the region’s poverty incidence of 4 percent.
He emphasized the need to attract more foreign investments, especially in the agriculture and manufacturing sector, to achieve inclusive growth.
Individual taxes imposed across the Asean ranges from zero percent to a high of 15 percent. In the Philippines, individual income taxes range from 12 percent to 32 percent.
Last year, foreign direct investments in the country reached $6.20 billion, representing a 65.90-percent increase from 2013.