Tax and market reforms are transforming the economy

Over the past decade, the Philippine government has implemented pivotal tax and market reforms to drive economic growth, ensure fiscal sustainability, and enhance business competitiveness. Landmark legislation — including the Tax Reform for Acceleration and Inclusion (Train) Act, Corporate Recovery and Tax Incentives for Enterprises (Create) Act, Ease of Paying Taxes Act (Eopta) — all played a transformative role in modernizing the country's tax system and strengthening its financial markets.

Enacted in 2017 and implemented in 2018, the Train Act (Republic Act [RA] 10963) was the first package under the Comprehensive Tax Reform Program. The groundbreaking reform aimed to simplify taxation, promote equity, and generate revenues to fund infrastructure and social programs.

It led to higher disposable income for low- and middle-income earners by reducing personal income tax rates and exempting individuals earning P250,000 or less annually. Adjusted tax brackets lowered the burden on middle-income earners, resulting in higher take-home pay, increased consumer spending, and economic growth.

It also increased government revenue for development programs.

To offset lower income tax collections, Train imposed higher excise taxes on fuel, automobiles, sugary beverages, and cigarettes. The additional revenue funded major government initiatives such as the Build Build Build program, free college tuition, and universal health care.

Greater consumer spending and improved government infrastructure investments contributed to business expansion, enhancing logistics, connectivity, and overall economic activity. The introduction of a flat 6-percent tax rate on estate and donor's taxes, meanwhile, replaced the complex tiered system, making wealth transfers more efficient and equitable.

While Train improved revenues, however, higher excise taxes contributed to inflation, particularly in fuel and food prices. The government mitigated this through safety nets like the unconditional cash transfer program.

The law played a transformative role by balancing tax relief for low- and middle-income earners with enhanced government revenue. While inflationary concerns arose, the long-term benefits of fiscal sustainability, economic growth, and investment confidence positioned the country for further development.

To counteract the economic downturn from the Covid-19 pandemic, meanwhile, the Create Act (RA 11534) was enacted in 2021. The law provided tax relief to businesses while modernizing investment incentives.

Among others, it reduced the corporate income tax for large corporations to 25 percent from 30 percent, while that for micro, small, and medium enterprises with net taxable income of P5 million or less and total assets below P100 million was lowered to 20 percent.

Fiscal incentives were rationalized and modernized to be performance-based, time-bound, and targeted incentives. Also included in the law is an income tax holiday of four to seven years, a five-percent special corporate income tax for export enterprises, enhanced deductions for domestic and export enterprises and sunset provisions for existing incentives.

VAT exemptions and incentives, meanwhile, cover sales of medicines for cancer, diabetes, and kidney disease and a VAT zero-rating for exporters to maintain global competitiveness.

The minimum corporate income tax was reduced to 1 percent from 2 percent until July 1, 2023, easing the burden on struggling businesses, while the percentage tax for non-VAT registered businesses was lowered 1 percent from 3 percent, effective until July 1, 2023. Incentives were also provided for investments in less-developed regions and priority industries.

Create lowered corporate tax rates, bolstered business recovery, and improved the Philippines' attractiveness to investors. The restructured tax incentives encouraged strategic investments, fostering economic revival and job creation.

The Eopta Act (RA 11976), signed into law in 2024, modernized tax compliance by reducing administrative burdens and aligning tax processes with global best practices. Among others, taxpayers were categorized into small, medium, and large, streamlining compliance processes, and tax filing and payment were simplified via fewer forms, improved e-filing/e-payment systems and nationwide payment options.

It also streamlined the VAT system, ensuring refunds within 90 days, and VAT-exempt transactions were made clearer to reduce compliance complexities. Greater use of technology in tax processes was also mandated, reducing errors and improving efficiency.

The Eopta has made tax compliance more accessible, particularly for small and medium enterprises. By integrating digital solutions, it enhances efficiency, transparency, and global competitiveness.

Meanwhile, the anticipated Capital Markets Efficiency Promotion Act (Cmepa) seeks to modernize Philippine capital markets by reducing tax barriers, encouraging investment, and enhancing market liquidity.

Among others, it aims to lower the stock transaction tax to 0.1 percent from 0.6 percent in line with regional markets. The documentary stamp tax for original issuances will also be lowered to 0.75 percent from 1 percent and unit investment trust funds and mutual funds will be exempted from the tax, making them more attractive. The tax treatment of long-term deposits and investments will also be standardized, broadening the tax base.

Approval of the Cmepa law is expected to enhance market liquidity, encourage investment, and strengthen the Philippines' competitiveness in global financial markets. The coming years will reveal its effectiveness in expanding investor participation and deepening capital markets.

Train, Create, Eopta and Cmepa demonstrate the government's commitment to tax modernization, investment promotion, and ease of doing business. While each law addresses distinct aspects of economic development, together they create a comprehensive strategy for long-term growth.

As these reforms continue to evolve, businesses, investors, and taxpayers must stay informed and capitalize on emerging opportunities. Ultimately, these policy changes aim to build a more competitive, inclusive, and resilient Philippine economy that can navigate global challenges and sustain prosperity.

Source: Business World

Digitalizing tax: The next frontier

In the modern world, data is king. Every step taken creates a data footprint, and the ability to capitalize on this is crucial —with tax authorities and businesses being no exception.

As businesses generate voluminous data, there is growing recognition that tax and finance departments require robust digital infrastructure to run effectively. Globally, regulatory authorities globally recognize that the ability to collect and analyze taxpayer data is key to bridging the tax gap.

Taxpayers, meanwhile, are expected to provide tax and financial data through more rigorous regulatory and compliance requirements. There is also a pivot to ensuring that they implement effective financial and tax governance frameworks, guaranteeing data accuracy and the rigorous enforcement of company tax policies.

The Organization for Economic Cooperation and Development's vision on tax digitalization, i.e., Tax Administration 3.0, supports the view that digital transformation has the potential to expand the tax system in an increasing number of areas.

Throughout Southeast Asia, meanwhile, governments are enhancing their tax systems with digital frameworks. As noted by the Asian Development Bank, post-pandemic tax reforms across the region have prioritized digitalization to strengthen economic recovery and improve efficiency in tax administration.

Singapore, Malaysia, and Indonesia have implemented advanced compliance systems. Beyond e-filing and payment systems, tax authorities are now exploring new technologies like big data, blockchain, biometrics, and artificial intelligence.

In 2020, Thailand launched a value-added tax (VAT) refund mobile app that allows tourists to make VAT claims. The system uses blockchain technology to record and track claims and purchases, enhancing data integrity and efficiency.

This year, Indonesia announced the Core Tax System, which enables the automation and digitalization of tax administration and provides an integrated network for more informed, data-driven decisions.

The Philippines joined the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) implementation in November 2023. The framework implements measures to tackle tax avoidance and equip governments with instruments to minimize profit shifting to low-tax jurisdictions that erode a country's tax base.

To maintain membership, the Philippines will need to implement "minimum standards" to combat harmful tax practices. Modernizing its existing tax framework from both technical and technological standpoints will be crucial. This should incentivize the Bureau of Internal Revenue to accelerate its digital transformation with more urgency.

Digital transformation is included in the Philippine Development Plan 2023-2028. The country has taken steps toward digitalization through initiatives like e-invoicing, aligning with the region's digital trends. Observing these regional advancements can help Philippine companies anticipate the future direction of tax systems.

As for Philippine companies, they need to adapt their digitalization strategies in key areas such as transfer pricing (TP) and Pillar Two rules to align with other countries in Southeast Asia.

TP involves setting prices for transactions between related parties within multinational enterprises to ensure these prices adhere to the arm's length principle (i.e., prices are set as if between unrelated parties). This aids in the fair allocation of taxable income across jurisdictions.

TP also impacts a company's profitability, operational structure, and fiscal efficiency. Technology plays a critical role in monitoring pricing and financial outcomes, structuring or restructuring business to achieve fiscal efficiencies, and meeting compliance obligations.

Meanwhile, Pillar Two rules — also known as the Global Anti-Base Erosion Model Rules (GloBE) — are transforming the tax landscape by applying a 15-percent global minimum tax across all countries where a company operates. This requires advanced data management and comprehensive analysis of tax positions.

Pillar Two forms part of BEPS 2.0, together with Pillar One, which introduces a new approach to taxing the digital economy.

Adopting a digital strategy does not require a complete redesign of a company's finance system architecture. It can focus on targeted, point-based solutions that could address immediate concerns but with a broader, overarching strategy in mind.

For Philippine companies, digital transformation in tax compliance and TP goes beyond mere automation. It involves building a strategic digital framework that enables an organization to pre-empt, pivot or keep pace with technological advancements and regulatory shifts.

Developments in TP and BEPS 2.0 necessitate rethinking the future of the finance function. Digital tools streamline complex data processes, automate calculations, and improve documentation accuracy — meeting the intensive data requirements of regulations such as the GloBE rules.

Companies need to move away from siloed, manual processes and embrace a more integrated approach across tax, finance, and operational functions. The top priority for tax transformation is ensuring the integrity of data across various use cases.

By leveraging automated data extraction and integration, companies can build a single, unified data source, reducing manual errors and enhancing the efficiency and timeliness of financial, tax and TP calculations. A tech-enabled tax and TP infrastructure facilitates data-driven strategic decision-making for businesses. It also enables data analytics to preempt potential tax issues before they reach the desks of regulatory authorities.

Embarking on a digital transformation journey requires assembling many moving parts. However, the benefits that can be realized along the way are substantial. For Philippine companies, proactive technology investment is essential to address the growing complexities of tomorrow's tax and transfer pricing frameworks.

Source: Manila Times

The need for property tax reform

As we work to achieve sustainable economic growth, maybe we can rethink the tax structure. Rather than heavily relying on income taxes, perhaps it is timely to consider a strategic shift toward property taxes, and in part, to business, and consumption taxes — especially on goods with negative externalities.

Personal income taxes, though progressive, burdens especially middle-income earners, potentially hindering their spending capacity. By shifting away from personal income taxes and toward property and business taxes, governments can generate more revenues from profitable sectors.

Corporate tax reforms can prove beneficial for revenue generation by minimizing avoidance and fighting evasion. Obviously, to encourage investments, business or corporate income should be taxed at fair and globally competitive rates. But, the government need not bend backwards too much in this regard.

As for shifting more of the tax burden to consumption, this should be skewed specifically towards excise taxes on goods associated with negative externalities, such as sugary beverages; cigarettes, tobacco, and vaping products; beer, liquor, and other alcoholic beverages; and in part, carbon-emitting fuels.

Options include higher excise taxes on jewelry; motor vehicles including motorcycles; and, maybe unhealthy or junk food. The objective is to minimize the consumption of goods that have high social and health costs. It is incidental that taxing them provides a source of revenue. The aim is to discourage harmful consumption behaviors.

By taxing goods that carry social costs, the government can create a two-fold benefit: theoretically it reduces the demand for harmful products, and, at the same time, generate revenue that can be channeled or earmarked for spending on healthcare, environmental protection, and public education.

Mexico introduced a soda tax in 2014 to combat rising diabetes rates, using excise taxes to generate revenue as well as reduce public health costs. Within the first year, sugary drink sales dropped by over 5%, and the tax now provides additional funding for healthcare and public health initiatives. The Philippines has followed suit with its own sugary drinks tax.

As for India, it implemented a carbon tax on coal production to curb emissions and fund renewable energy projects. This excise tax, levied at a specific rate per ton of coal, has raised significant funds for green energy development, highlighting how consumption taxes on polluting industries can drive sustainable development while meeting fiscal goals.

But more government revenues, if feasible, should come from property taxes. And it should be collected and managed at the local level. Property taxes capture wealth accumulated through real estate and ensure that property owners contribute fairly to local infrastructure and service costs.

Property taxes offer a largely untapped revenue stream in many developing countries, where they currently represent only a fraction of what they do in more developed economies. In wealthier countries, property taxes contribute more than 1% of GDP, with some countries reaching nearly 3%. In contrast, emerging regions like Asia and Africa generate only around 0.1% of GDP from property taxes, highlighting a missed opportunity.

By expanding property tax revenues, the Philippines can build a more stable and equitable revenue base, less susceptible to economic fluctuations than income taxes. Shifting the tax burden from personal income to property also allows the government to retain a progressive revenue source without stifling individual earning potential.

In cities like Lagos in Nigeria and Delhi in India, improved property tax collection has reportedly generated more funds for urban development, better waste management, and increased social services — enhancing the quality of life for residents while stabilizing local budgets.

In Lagos, by mapping properties via GIS technology and tightening tax compliance, the city reportedly increased its property tax collection fivefold, generating over $1 billion in a decade. This revenue supports critical urban services and infrastructure improvements, boosting public trust and improving local quality of life.

And in Bogota, Colombia, updated property valuations and tax reforms have reportedly helped municipalities fund local development projects. Linking property taxes directly to urban improvements, Bogota has seen rising public acceptance and compliance, particularly as residents observe the impact on infrastructure and local services.

In Belo Horizonte in Brazil, a clear correlation was reportedly established between property tax revenues and visible local improvements, including road maintenance and waste management. This transparency encouraged higher compliance and provided a stable revenue source for ongoing municipal projects.

To be fair and equitable, property taxes should impose minimal burdens on those without substantial assets. To protect low- and middle-income homeowners from a high tax burden, exemptions and deferred payments can be considered. This way, the government can promote affordable homeownership while ensuring that those who benefit most from urban growth also contribute proportionately.

In raising property taxes, a gradual, phased approach is recommended. Municipal governments should also establish clear policies on exemptions and implement mechanisms for regular public reporting of tax expenditures. By limiting exemptions to a narrow range of beneficiaries, local governments can prevent revenue erosion and ensure funds are available for public services.

For asset-rich but cash-poor households, such as retirees or elderly homeowners, the government can introduce deferral programs that allow taxes to be postponed until the property is sold. Exemptions or rebates can also be given to pensioners and low-income households. This approach ensures that property taxes remain fair and do not impose undue financial hardship on vulnerable groups.

Having localized, visible benefits from higher property taxes can help improve public buy-in, particularly from low- and middle-income groups, and hopefully minimize political resistance to taxation. People should be able to directly observe — see and feel — how their tax contributions translate into public benefits.

Of course, it goes without saying that business or corporate income taxes should continue to play a major role in revenue collection, as they allow governments to capture a share of corporate profits without unduly burdening individual earnings. Fair, but not necessarily low, taxation will allow corporations to contribute to the public good while maintaining the productivity that drives economic growth.

In Colombia, corporate taxes are said to fund local public services and infrastructure projects, showing a direct link between corporate taxation and social development. Such taxes can be earmarked specifically for education, healthcare, and economic development initiatives.

By connecting corporate tax revenue to visible projects, Colombia has built public trust, aligning corporate taxation with social benefits. As a result, corporate tax compliance has reportedly increased, showing how transparency in the use of taxes fosters acceptance and collaboration.

Overhauling property, corporate, and excise taxes on harmful consumption can support a robust and equitable tax base. By shifting away from personal income taxes, governments can create revenue systems that capture wealth more fairly, incentivize healthier behaviors, and fund public services effectively.

Source: Business World