While this article tries to highlight the significant tax savings OFWs enjoys from their FCDU (Foreign Currency Deposit Unit) deposits (not the peso denominated ones), its nice to know they are now are able to save some of their income. And while the added comment made was to evaluate whether the tax exemption is serving the purpose it was intended for (to keep the funds in the banking system), I would think why not more is done to further promote a high savings rate among OFWs. For instance, why not offer tax exemption for all types of deposit and investment instruments for OFWs?
From BusinessWorld Philippines
October 03, 2012
OFW perks benefiting the economy
TAX BREAKS granted to the remittance industry are worth the loss in government revenues since they encourage savings and investments among migrant workers, the National Tax Research Center (NTRC) said.
Overseas Filipino workers (OFWs) are exempted from the 7.5% final withholding tax on interest earned by their foreign currency deposits, among others, which the NTRC said in a study can then be channeled to investments like insurance and real estate — developing the capital markets and stimulating the economy.
Migrant workers also enjoy an exemption from the P0.30 documentary stamp tax charged for every P200 in money transfers and remittances. The incentive was passed into law in 2010 to lower OFWs’ transaction costs as the government feared the tax was forcing them to send money via informal channels.
“The exemption from the documentary stamp tax of OFWs’ remittances to the Philippines, while reducing the revenue of the government, is expected to encourage more money transfers through formal avenues,” the NTRC said.
“In addition, [it] would likewise compensate for the loss brought about by the reduction in the value of OFWs’ earnings when converted into the local currency.”
As of last year, the government has waived an estimated P778.7 million in documentary stamp taxes since the perk was granted.
The NTRC urged the government to be wary of latest global developments, though, especially as Saudi Arabia — one of the top destinations of OFWs — is considering a cap on remittances.
“The proposal is seen by Saudi government officials as a means to develop its economy… It is also concerned about the opportunity cost of having so much economic output produced by foreigners whose money is not spent or invested within the Kingdom,” the study states.
Migrant workers sent home $11.936 billion as of July, 5.2% higher than the $11.351 billion posted in the same period last year. This was in line with the central bank’s 5% growth target.
“Overseas remittances will continue to have an ever-increasing role in the Philippine economy… especially since they provide significant source of foreign exchange… and also help increase consumer spending that has multiplier effect in the economy,” the NTRC said.
Finance Assistant Secretary Ma. Teresa S. Habitan, however, is still concerned about the loss in government revenues.
“People usually think that OFWs are mainly laborers, but there are also many of them with high income, and we lose out on the taxes imposed on those,” she said in an interview.
While Ms. Habitan supported the move to encourage remittances, savings and investments, she called for a broader strategy.
“Tax is usually the primary focus in giving incentives when there are other costs and issues that could be targeted to make remittances more affordable and accessible,” she said.