Philippines Tax Department Considers Lowering Taxes

March 11, 2014 Posted by ASEAN Briefing Reading Time: 3 minutes

The Philippines’ Bureau of Internal Revenue (BIR) Commissioner, Kim Henares, explained in an interview with ABS-CBN News Channel last Thursday that the BIR is considering draft proposals that will lower personal income taxes by 2015.

The Commissioner emphasized that this issue should not be rushed and must be approached in a “holistic” matter. The primary concern for now is still plugging tax loopholes and rationalizing things. Henares clarified that the BIR would only support a measure that was revenue-neutral, such that if income taxes were to be lowered, it should be replaced by some revenue raising mechanism elsewhere.

The move to lower personal taxes is being pushed by Senator Juan Edgardo “Sonny” Angara of the LDP party, who filed Senate Bill 2149. The Bill seeks to lower the Philippines’ highest personal income tax rate from 32 percent to 25 percent, in an attempt to be more competitive with other ASEAN nations. Under the Bill, the rates would be lowered over three years, starting in 2015.

Presently, the Philippines’s highest marginal tax rate is 32 percent for those earning PHP500,000 (around US$11,000) and above — the third highest rate in ASEAN, closely behind Thailand (maximum tax rate of 37 percent) and Vietnam (maximum tax rate of 35 percent). In contrast, Singapore’s highest personal tax rate is 20 percent, Malaysia’s is 26 percent (to be lowered to 25 percent in 2015), and Indonesia’s is 30 percent.

Deputy Speaker Giorgidi Aggabao welcomed Henare’s statement that she was open to lowering personal taxes, but has gone further to suggest that the BIR should also consider lowering the corporate income tax rate, which currently stands at 30 percent. He argued that freeing up this income for companies would enable them to expand and create more jobs.

Moreover, a lower corporate tax rate would enable the Philippines to be more competitive tax-wise in ASEAN, and attract more foreign direct investment (FDI), which would benefit the country’s economy.

The Philippines’ corporate tax rate is the highest in ASEAN (except where a company in Myanmar is not registered under its Foreign Investment Law). Indonesia, Malaysia and Vietnam have the second-highest tax rates at 25 percent – a whole 5 percentage points lower than the Philippines.

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