Tax fairness key to FDIs, competitiveness

MANILA, Philippines - The Tax Management Association of the Philippines (TMAP) reiterated the call of the private sector to promote tax fairness as a way to enhance national competitiveness and attract foreign investments.

Tax fairness or justice is crucial to sustained national economic growth, since it is a key factor in multinationals’ business and investment decisions, said Terence Conrad Bello, the new president of the grouping of local accountants, lawyers, and other tax professionals.

“According to various studies, such as the World Economic Forum’s Global Competitiveness Report, business decisions are not only influenced by tax policy parameters (e.g. tax bases and rates) but also by the way in which a tax system is administered,” said Bello, who spoke at the TMAP membership meeting recently.

“We all know that the Philippines is lagging behind in FDIs (foreign direct investments) due, in part, to administrative inefficiency and a complex tax system.”

According to Bello, the current pending status of the proposed measures to reduce the corporate income rate (CIT) to a level consistent with peers in the Association of Southeast Asian Nations (ASEAN). The average CIT rate in the ASEAN is 23 percent against the Philippines’ 30 percent.

“In a world with high levels of capital mobility, countries simply cannot ignore the potential effect on investment of how their tax rates compare with other countries,” he added.

“Our tax system is not perfect. Certainly our revenue authorities are not perfect either. However, there is always room for improvement,” he said.

Areas for improvement include the timely refund of overpaid taxes, in particular large amounts of value-added tax (VAT) credits that he said typically arise with exporting countries like the Philippines.

Bello was referring to a new order by the Bureau of Internal Revenue (BIR) that prescribes new rules for VAT refund claims.

Specifically, late last year, a joint letter and position paper from 20 business associations called for the withdrawal of Revenue Memorandum Circular (RMC) 54- 2014. The circular dated June 11, 2014 outlines the rules on the filing and processing of applications for VAT refund or credit.

In the letter, the petitioners expressed “serious concerns” that the new policy would negatively impact on VAT zero-rated or effectively zero-rated taxpayers, such as foreign investors, exporters, regional operating headquarters, I.T. and business process management companies, renewable energy projects, independent power producers, and mining companies.

Essentially, they said, the new rule will serve as a disincentive by making it “even more difficult for zero-rated taxpayers and investors to recover the VAT refunds owed by Government.”

“The sudden change in the VAT refund process rules under said RMC shows the lack of transparency, predictability and consistency on the part of Government, which greatly affects investor trust and confidence,” the paper said.

In recommending the withdrawal of RMC 54-2014, it said the policy creates an unfair situation that “also dampens our country’s national competitiveness since any unrefunded VAT arising from these very restrictive rules, on top of the existing bureaucratic inefficiencies, will result to higher costs of doing business in the Philippines as compared with other countries vying for the same market or investment.”

The letter was signed by the top officials from foreign and local chambers in the Philippines, exporters such as the Philippine Export Confederation  Inc., industry associations, and professional organizations including TMAP.