February 27, 2017, 3:16 pm
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Taxation in Asean

ECONOMIES in the Association of Southeast Asian Nations need not have uniform tax rates in order to benefit from  integration under the Asean Economic Community (AEC), the country’s chief economist said.

To fully enjoy the benefits of the integration, Asean countries should be competitive in infrastructure, wages, labor efficiency, management efficiency, and costs of production, including taxes, said Gil Beltran, undersecretary of the Department of Finance (DOF) chief economist.

“You don’t need to zero out your taxes to be competitive. There are other production costs aside from taxes,” Beltran  said in an e-mail interview.

Instead, Beltran said,  governments have  to harmonize rules on taxation to avoid friction and overlaps. 

“Cross-border transactions need to be defined clearly and a streamlined process needs to be put in place to ensure that there will be no leakages and overlaps,” Beltran said.

“The costs of complying with tax obligations have to be kept low enough so that the benefits of integration are not eroded,” he added.

Beltran said  with the AEC, which is set to begin at the end of 2015, opportunities for consumers and investors will broaden. 

The envisioned AEC rests on four main pillars: the establishment of a single market and production base; greater competition within the region; equitable development for all; and enhanced integration into the global economy.

“The market will be bigger in size and growth (would be) much faster. There will be more competition but success in the competitive process will be rewarded,” Beltran said.

“It will take some time before the full effect will be felt because there are lags in responses but eventually, the effect will seep in,” he added.

Beltran, however, said  there are several bottlenecks that need to be addressed with the integration of Asean economies.

These are the lack of infrastructure, information, legal constraints, and differences in language and culture. 

“Investors and consumers will need to understand the market fully before they can fully take advantage of opportunities created by integration,” Beltran said.

Finance Secretary Cesar Purisima previously said that in light of efforts to accelerate Asean integration and to boost Philippine competitiveness, the DOF is open  to a change in the tax system, particularly in the income tax structure.

“Lowering income tax rates will attract even more foreign investors into the country but will be detrimental to our fiscal health if they are not offset by revenue-generating measures,” Purisima  said.

“Hence, we remain resolute in our stand that any tax reform pursued must be holistic, revenue-neutral, and equitable so all Filipinos may continue to benefit from a robust fiscal position. This is the mindset that we possess as we engage in discussions with legislators concerning tax reform,” he added.

Purisima said  in light of the upcoming Asean  integration, there is broad agreement on the need for international cooperation and multilateral instruments as strategies to boost tax administration and compliance. 

The Philippines has among the highest effective tax rates in Asean. But tax effort --- tax revenue to GDP ratio – is lower than those of its regional peers, at 13.7 percent in 2013.

“Tax systems must raise revenues to benefit the areas and communities where businesses operate and profit from,” Beltran said.

“Tax policy must therefore not only be simple, progressive, and equitable, it must consider environmental and social justice as key priorities as well,” he added.

For her part, Bureau of Internal Revenue Commissioner Kim Henares said  living in an increasingly globalized world requires governments to adapt and update tax policy and enforcement strategies. 

“International cooperation is key if we want to raise sustainable amounts of revenues to continue funding growth and investments to our people and country,” Henares  said in an earlier interview.

Meanwhile, National Economic and Development Authority director general Arsenio Balisacan earlier said  reforming the tax system and raising tax efforts to levels at par with regional peers is also crucial in sustaining fast-paced growth. 

“Some areas that need further institutional reform include: improving the tax effort among the self-employed and corporations; curbing smuggling; improving the current mining fiscal regime; and rationalizing fiscal incentive,” Balisacan said.

The NEDA chief said  Asean has come a long way to realizing goals especially in the past decade. 

“AEC is all about deeper economic integration with our regional neighbors, in view of even deeper integration for the Borderless Asean Community by 2030,” Balisacan said.

“As early as January 2010, more than 99 percent of tariff lines between Asean-6 Member Countries have been brought down to zero in line with the goals of the Asean Free Trade Area or AFTA. Efforts are underway to hasten the elimination of non-tariff barriers,” he added.

The NEDA chief also noted  that the Asean has forged free trade agreements with key global players, namely China, India, Japan, South Korea, Australia, and New Zealand, to bolster the region’s position in the international stage.

“While several reforms have been instituted in the Philippines putting it in a favorable position to benefit from AEC, many developmental constraints still need to be addressed to maximize our gains from AEC, especially in opening up investments, accelerating infrastructure development, and generating high-quality jobs,” Balisacan said.

The NEDA chief said that while low-hanging fruits are within reach, some policy reforms are “much easier said than done.” 

“In truth, many of these crucial reforms should have been done decades ago, but the AEC 2015 is a welcome deadline highlighting their importance and adding pressure to their urgency,” Balisacan said.
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