Tax Avoidance To Blame For Fiscal Troubles In The Philippines, Claims Expert

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

10 February 2005

A leading tax expert has suggested that the fiscal problems currently being experienced by the government of the Philippines can be attributed in large part to tax evasion by the country’s wealthiest citizens and business people.

According to a report by the Associated Free Press, Victor Abola, tax professor at the University of Asia and the Pacific in Manila, believes a culture of tax avoidance has developed among the wealthiest 5%, many of whom he says pay little or no income tax.

Abola had previously said that salaried workers contributed roughly the same in taxes as those on business incomes, but now he says that the former group paid 76 billion pesos (US$1.38 billion) in income taxes in 2003, while the latter contributed just 7 billion (US$127.5 million).

He added that income tax payments currently account for about 18% of the government's total tax revenues, although people on salaries shouldered a disproportionately higher load with an effective tax rate of 26.66%, despite earning less than people with a business income.

Abola rejected the argument used by some that tax revenues all too frequently ended up in the hands of corrupt officials.

"You have to first fulfil your duty - and then you can complain," he was quoted as observing.

"I think we have too many complainers here and too few honest taxpayers,” he argued.

The Philippine government has been forced to take some drastic measures on the fiscal front after President Gloria Arroyo warned last year that the country was on the brink of a deficit crisis

Among the measures proposed to bolster tax revenues are a two-tiered value-added tax system, a windfall tax on telecommunications income, a general tax amnesty, and the paring back of certain fiscal incentives. New ‘sin taxes’ on tobacco and alcohol have already been passed into law.

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