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Moody's Warns Philippines Against Tax Cuts

by Mary Swire,, Hong Kong

19 November 2015

Moody's Investor Services, the international credit rating agency, has warned the Government of the Philippines not to cave in to the clamor for income tax cuts and to continue to pursue policies that will lift the country's tax-to-GDP ratio.

According to local media reports, Christian de Guzman, Vice President and Senior Analyst at Moody's, said that the Philippines is "among the lowest revenue generators among investment-grade countries" and measures that ultimately would reduce tax revenue could therefore undermine its standing with investors.

"It is not for Moody's to decide or opine whether or not lower income taxes are appropriate for the Philippines but we are looking at the overall revenue performance of the Philippines," he was quoted by the Philippine Star as saying, whilst attending the Asia-Pacific Economic Cooperation meetings, which are being held in Manila from November 18 to 19.

Several lawmakers have urged the Government to ease the tax burden recently, with taxes in the Philippines seen to be increasingly out of step with other countries in the region. The Philippines currently charges the highest rate of corporate tax and the second-highest rate of personal income tax among the ASEAN-6, which also includes Indonesia, Malaysia, Singapore, Thailand, and Vietnam.

Earlier this month, Sonny Angara, the Chairman of the Senate Ways and Means Committee, tabled a new Income Tax Reform Bill, which would overhaul personal income tax thresholds, to make the regime more "equitable" and "progressive." He pointed out that, under the National Internal Revenue Code of 1997, individuals with taxable income of over PHP500,000 (USD10,617) are subject to a fixed levy of PHP125,000 plus a 32 percent rate on the excess over PHP500,000. This 32 percent is among the highest in the region, only behind Thailand and Vietnam's 35 percent.

Under Senate Bill 3003, the seven tax brackets will be retained but the thresholds would be adjusted to take account of wage inflation since 1997. At the top end of the scale, those earning over PHP1.2m would pay a fixed tax of PHP300,000 plus 32 percent of the excess over PHP1.2m.

A separate bill introduced into Congress in August 2014 by the Chairman of the House Ways and Means Committee, Romero S. Quimbo, proposed to reduce the corporate income tax rate from 30 percent to 25 percent.

President Aquino has, however, poured cold water on the idea of tax cuts for the foreseeable future despite the upcoming election. Instead the Government is concentrating its efforts on widening the tax base and cracking down on tax avoidance and evasion. With very few new tax measures, the Government's 2016 Budget targets an increase in tax revenue as a percentage of the economy to 17.5 percent next year, up from 16.3 percent in 2015.

TAGS: individuals | tax | investment | law | budget | Philippines | Singapore | Thailand | tax thresholds | Indonesia | Malaysia | inflation | Vietnam | Asia-Pacific | Invest | Tax

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