THE PHILIPPINES has lost ground in global tax rankings published by the World Bank and the International Finance Corp. (IFC), having been overtaken by other countries that implemented reforms to make payments easier and less costly for businesses.
The country fell nine places to 135th, from 124th last year, out of 183 economies in the annual Paying Taxes report. Maldives was ranked first, followed by Qatar, Hong Kong, Singapore and Ireland. Bolivia, Chad, Ukraine, Congo and Venezuela were at the bottom.
The Paying Taxes list involves measuring all mandatory taxes and contributions imposed on medium-sized firms in a given year. It considers three indicators: the number of tax payments required of businesses, the time given to comply and the total tax rate.
Globally, firms spent an average of 277 hours this year in complying with 28.5 tax payments, paying 44.8% of their commercial profit for taxes and mandatory contributions. This was an improvement from the previous year which saw 282 hours in tax compliance time, 30 tax payments and a total tax rate of 47.8%.
“The downward trend in the Paying Taxes results has been driven by many successful tax reforms showing that improving the tax system for business is high on governments’ agenda. Around the world governments have reduced tax rates, reformed their tax rules, simplified the process for filing and paying taxes and introduced online systems,” the report read.
Philippine indicators did not budge, however, even as the Aquino government promised to focus on tax administration efficiency in lieu of imposing new taxes.
The country, according to the report, requires 47 tax payments from businesses per year, significantly higher than the world average of 28.5. One corporate income tax payment, 36 labor tax payments and social contributions, and 10 for other forms of taxes are mandated. This put the Philippines in 155th place in the tax payment category, its lowest ranking in the report and down from 149th the year before.
The country fared better in the tax time compliance category, ranking 72nd from 70th last year. Businesses here spend 195 hours to settle their tax obligations, markedly lower than the global benchmark of 277 hours. A total of 37 hours is needed to pay corporate income tax, 38 hours for labor taxes and social contributions and 120 hours for consumption taxes.
The Bureau of Internal Revenue is currently in the process of modernizing its system to allow more and more taxpayers to settle their liabilities online. Large taxpayers, particularly the country’s top 2,000 firms, can transact through an electronic facility.
The Philippines, lastly, dropped 11 spots to 129th in the total tax rate category. Taxes now take up 46.5% of firms’ commercial profit, higher than the 45.8% posted last year and the 44.8% world average for 2011. A total of 21% goes to corporate income tax, 11.3% for labor taxes and social contributions, and 14.2% for other taxes.
Paying Taxes cited 33 countries that implemented significant reforms that made it easier and less costly for businesses to pay taxes. The most common tax reform was the increased use of online systems to facilitate tax compliance, introduced by 23 states.
“Electronic filing and payment reduces the amount of paperwork, allows a more targeted and risk based approach to audit and compliance, and can help eliminate corruption,” the report read.
Countries were urged to pursue more reforms, with the report noting that businesses perceive tax administration and tax rates as less of an obstacle when it is easier to pay.
Governments have it in their control to develop tax systems that encourage more investments, PricewaterhouseCoopers UK tax partner Andrew Packman said in an accompanying statement issued last week.
Augusto Lopez Claros, director for global indicators and analysis at the World Bank, said: “If they create a system that is easy to comply with, it is more likely that businesses will operate in the formal economy and provide a more sustainable source of revenue than debt or aid.”
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By: Diane Claire J. Jiao
Source: Business World, Nov. 22, 2011
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