Investment Incentives and Effective Tax Rates in the Philippines

Abstract

We compare the general tax provisions and investment incentives in the Philippines to six other east-Asian economies-Malaysia, Indonesia, Lao, Vietnam, Cambodia, and Thailand. We calculate effective tax rates and find that general effective tax rates are relatively high in the Philippines, while investment incentives are comparable to those in neighboring countries. Tax holidays are most attractive for very profitable firms, creating redundancy, and for investment in short-lived assets. We also consider recently-proposed tax reforms that would replace tax holidays by a reduced corporate income tax rate or a low tax on gross receipts. The results suggest that this would result in stronger incentives to invest, while government revenue increases. Alternatively, replacing holidays with a general reduction in the corporate tax rate and offering accelerated depreciation will either not provide the same incentives or be very costly.Corporate taxes;Tax reforms;Revenue sources;tax rates, tax incentives, tax rate, taxation, investment incentives, taxable income, accelerated depreciation, income tax rate, tax system, corporate tax, fiscal incentives, discounted value, depreciation allowances, fiscal incentives for investment, tax policy, corporate tax rate, tax administration, investment projects, investors, foreign direct investment, tax credit, tax base, direct investment, tax credits, investment allowances, retained earnings, local taxes, investment promotion, tax avoidance, rate of return, institutional reform, investment decisions, foreign investment, economic zone, economic zones, revenue collection, government revenue, investment priorities, investment promotions, investment climate, business taxation, statutory tax rate, cost of capital, fiscal cost, special economic zones, investment promotion agency, tax on capital gains, tax on dividends, reforms of tax administration, tax payment, fiscal authority, tax returns, international investors, fiscal affairs, fiscal affairs department, fixed costs, tax revenues, tax authorities, tax competition, foreign investors, investment climate assessment, export processing zones, capital expenditure, import duty exemptions, corporate tax structure, business investment, investment promotion agencies, tax payments, tax structure, depreciation methods, rates of return, fixed assets, international norms, tax regime, public finance, domestic investment