Philippine Government To Raise Taxes On Offshore Banking Transactions

by Mary Swire, Tax-News.com, Hong Kong

27 August 2001

Reports from the Philippines have revealed that the government intends to impose a dramatic increase in the transaction tax placed on offshore banking units (OBUs) from 10 per cent to 30 per cent in a bid to generate additional revenue of P10 billion.

At present there are 13 OBUs located in the Philippines that are licensed to accept dollar deposits and perform transactions with non-residents and other OBUs. At one time the OBU enjoyed a totally tax exempt status on transactions in foreign currency denominated units (FCDUs) until the Comprehensive Tax Reform Programme (CTRP), part of a structural reform of the tax system, was introduced in 1997 and imposed the 10 per cent tax.

According to Finance undersecretary, Cornelio Gison, the OBUs had appealed to the finance department to reconsider its decision and reinstate their tax exemption benefits. The Bankers' Association of the Philippines was fiercely opposed to the FCDU tax hike, but 'the imposition of the 10 per cent tax was included in the CTRP so the only way to amend it is through Congress,' said Gison.

A poor tax collection last year left the government with a deficit of P136.1 billion, but the Bureau of Internal Revenue (BIR) has expressed confidence that it will meet this year's tax collection target of P399 billion. In his Budget presentation last week, Finance Secretary Jose Isidro Camacho predicted that the tax collection of the second half of 2001 is on target with expected revenues to reach P291.5 billion. 'With the measures we have taken, we are sure that we can meet and possibly even exceed our target,' BIR Commissioner Rene Bañez told reporters.

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