SOURCES of overseas Filipino workers’ (OFWs) remittances must be diversified to neutralize the impact of a proposed 3.5 percent excise tax on money transfers by non-Americans from the US, the Department of Finance (DOF) said.
The department is now studying the potential impact of this proposed remittance tax by the US, Finance Assistant Secretary Neil Adrian Cabiles said during a forum at the BSP Complex in Manila on Monday.
The Philippines is trying to find out how the US excise tax may “be circumvented” on the basis of the current setup of the US system on remittances, Cabiles said.
As far as remittances to the Philippines are concerned, money transfers are coming from the Middle East and Europe, the DOF official pointed out.
Balancing out threat’s impact
The whole point is not to simply compensate for the 3.5 percent excise tax, but more on how to ”balance” out the impact of the “threat” of such an excise tax on remittances from the US, “if ever they do get implemented,” Cabiles added.
While the DOF is crunching numbers right now, it is important to take note that the sources of remittances to the Philippines “are actually quite diversified,” Cabiles said.
The 3.5 percent tax on money transfers made by non-American citizens or nationals from the US is part of the “One Big Beautiful bill” passed by the House of Representatives on May 22.
Prior to this development, the proposed tax on remittances originating from the US was 5 percent.
“However, what we are also looking at is the policy perspective,” Cabiles said, adding: “the implementation of the excise tax is actually something that’s administratively difficult to actually apply.”
Impact on BPO revenues
Cabiles was asked during the event about the US measure’s impact on the Philippines’ profitable business process outsourcing (BPO) sector.
“Of course, it will have a certain impact on the BPO sector, given that there are remittances from the BPO sector coming into the Philippines,” Cabiles said.
That is why, the DOF official said, they are working together and consulting with the IT & Business Process Association of the Philippines on how this lucrative “industry might be able to prepare for this one should it really happen.”
PH major remittance recipient
John Paolo Rivera, a senior research fellow from the Philippines Institute for Development Studies, said the 3.5 percent tax could have a significant impact on the Philippines as one of the top remittance-receiving countries in the word.
Its impact would include a decline in remittance volumes coursed through formal channels, since lower income OFWs might be compelled to reduce the frequency and the amount of money they send back home to avoid the high cost, Rivera pointed out.
It could also have an impact on household consumption, education and healthcare could also be affect, since the daily expenses for millions of Filipinos come from remittances, Rivera said.
He also said it might also be possible that money transfers from the US would be coursed through informal channels to avoid the tax charge, posing risks to financial oversight and compliance with anti-money laundering regulations.
“This policy, if not softened or clarified, could erode dollar inflows, weigh on the Philippine Dpeso and marginally widen the current account deficit,” Rivera stressed.
Reinielle Matt Erece, an economist from Oikonomia Advisory & Research Inc., said OFW remittances are a large part of dollar inflows to the Philippines, and that the US tax on money transfer could have a negative impact on those inflows.
“Low dollar inflows may decrease dollar reserves, reduce capacity to manage foreign exchange fluctuations and to improve the country’s balance of payments,” he said.
“On the household level, lower remittances mean lower disposable income and spending,” Erece added.
Michael Ricafort, the chief economist from Rizal Commercial Banking Corp., said OFWs might also be compelled to pay more for their money transfers on top of the existing remittance charges.
“This could potentially weigh on OFW remittances growth,” Ricafort said.
