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A Culture of Exemptions

By: Cielito F. Habito, PhD
Why is it that we have a lower tax effort (tax revenues in proportion to gross domestic product) than most of our neighbors, and yet have higher tax rates than they do? Consider the following: In 2014, Philippine government revenues as a percent of GDP was 15.1 percent. The corresponding percentage was 19.9 for Malaysia, 18.5 for Singapore, 19.7 for Thailand, 16.5 for Cambodia, and 21.5 for Vietnam. And yet, among our neighbors, we have the highest rates of corporate income tax and value-added tax, and one of the highest for personal income tax.
Our corporate income tax rate of 30 percent well exceeds the Asia-wide average of 22.5 percent, with Indonesia and Malaysia having 25 percent, Vietnam 22 percent, Thailand and Cambodia 20 percent, and Singapore and Taiwan 17 percent. We also have the highest value-added tax or general sales tax, with our 12 percent VAT being higher than the 10 percent for Indonesia, Malaysia, Vietnam and Cambodia; 7 percent for Singapore and Thailand; and 5 percent for Taiwan. Our individual income tax has a top rate of 32 percent, against the Asia-wide average of only 28.4 percent. While ours is lower than Taiwan’s 40 percent and Thailand and Vietnam’s 35 percent, it is higher than Indonesia’s 30 percent, Malaysia’s 26 percent, and Singapore’s 20 percent.
So how come we have a lower tax effort when our taxes are actually higher? The anomaly suggests that there is too much leakage in our tax system. Apart from weaker tax administration, we simply have too many exemptions. And the more exemptions, the more opportunities for tax evasion. My friend, Albay Rep. Joey Salceda, once remarked that we Filipinos seem to have a “culture of exemptions.” It seems that everyone could argue why he or his uncle should be allowed to pay less than the usual amount of taxes due, or no taxes at all.  The problem is, they actually get it, thanks to lawmakers who are all too sympathetic, and all too eager to win reelection votes. Hence, we have well over 100 laws and statutes granting significant exemptions or tax reductions to various types of enterprises or transactions, mostly as fiscal incentives.
Read the full article at http://opinion.inquirer.net/101541/a-culture-of-exemptions