PH slides down in global tax ranking, says business report

Kim Arveen Patria
Kim Arveen Patria
Yahoo! Southeast Asia Newsroom

The Philippines is still among countries where paying taxes is most costly and difficult, as it slid down a global tax ranking despite government efforts at ramping up reforms.

The country placed 143rd out of 185 economies in the "Paying Taxes" report released by the Doing Business Initiative of the World Bank and the International Finance Corp., as well as financial service firm PricewaterhouseCoopers (PwC).

This compares to its ranking of 135th of 183 economies in the previous list.

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The country's lackluster performance reflects high tax cost and burden of compliance, which the report said is based on three indicators namely total tax rate, time needed to comply with major taxes and the number of tax payments.

The Philippines falls behind global averages in two out of three of the indicators in the report.

Local firms pay a total tax rate of 46.6 percent of their commercial profit, higher than the global average of 44.7 percent, the report showed.

They also have to process payments 47 times a year, more than the global average of 27.2 payments.

The number of hours for payment procedures in the Philippines, however, stand below the global average of 267 hours, pegged only at 193 hours.

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Figures also indicated a worsening in the Philippine tax system from last year's report, which showed that firms only had to pay taxes equivalent to 46.5 percent of their profit, with 47 payments taking a total of 195 hours.

This bucks the global trend which saw an easing both in terms of cost and burden of compliance.

"The report finds that over the last several years there has been a gradual reduction in the number of payments and in the number of hours spent by a medium-sized company to comply with its tax obligations," Augusto Lopez Claros, World Bank group's director for global indicators and
analysis said in a statement accompanying the report.

A total of 31 reforms made it easier or less costly for firms to pay taxes during the survey period, the report said, while processes received a boost from electronic systems which have been required or enhanced in 16 economies.

The United Arab Emirates sat on top of this year's list, followed by Qatar, Saudi Arabia, Hong Kong and Singapore.

At the bottom of the rankings, meanwhile, were the Central African Republic, Congo, Guinea, Chad and Venezuela.

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The report also noted that "the pressure from governments for tax authorities to generate higher tax revenues is likely to continue to increase" amid a global economic downturn which saw global aid and lending drop.

However, it highlighted the need to "strike a balance when setting fiscal policy," saying that tax systems can also attract inward investment and boost domestic business.

"We are seeing tension between the need for governments to raise tax revenue and at the same time provide a system that encourages economic activity and growth," said Andrew Packman, a tax partner at PwC UK.

"Governments seeking to create a more business-friendly tax climate need to focus not only on rates, but also on minimising the time and effort needed to comply," he added.