Investment Incentives and Effective Tax Rates in the Philippines: A Comparison With Neighboring Countries

By Alexander D Klemm, Dennis P Botman, Reza Baqir

September 1, 2008

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Alexander D Klemm, Dennis P Botman, and Reza Baqir. Investment Incentives and Effective Tax Rates in the Philippines: A Comparison With Neighboring Countries, (USA: International Monetary Fund, 2008) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Corporate income tax, Depreciation, Effective tax rate, Tax holidays, Tax incentives

Keywords: Accelerated depreciation, Contract research and development company, Depreciation rate, Export enterprise, Export processing zone company, Income tax, Indirect tax, Personal income, Tax year, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/207
Stock No:

WPIEA2008207
ISBN:

9781451870657
ISSN:

1018-5941

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