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

36 Pages Posted: 12 Sep 2008

See all articles by Dennis P. J. Botman

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Alexander Klemm

International Monetary Fund (IMF)

Reza Baqir

International Monetary Fund (IMF) - Research Department

Date Written: September 2008

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.

Keywords: Working Paper

Suggested Citation

Botman, Dennis P. J. and Klemm, Alexander and Baqir, Reza, Investment Incentives and Effective Tax Rates in the Philippines: A Comparison with Neighboring Countries (September 2008). IMF Working Paper No. 08/207, Available at SSRN: https://ssrn.com/abstract=1266540

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Alexander Klemm (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Reza Baqir

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5332 (Phone)
202-623-7580 (Fax)

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