Monthly Archives: December 2014

2014 in review

The stats helper monkeys prepared a 2014 annual report for this blog.

Here's an excerpt:

A New York City subway train holds 1,200 people. This blog was viewed about 6,000 times in 2014. If it were a NYC subway train, it would take about 5 trips to carry that many people.

Click here to see the complete report.

The need of a Tax Institute to help in Philippine Tax Reform

Reading this article just gives me greater confidence that there is a need for tax reform in the Philippines. One way of helping do this successfully is by establishing a tax institute that will help provide some academic perspective to the process.

From BusinessWorld Philippines

December 23, 2014

My Christmas wish list for the tax system

WITH BARELY two days before Christmas, many of us are still not done with their shopping lists. Walking through aisles at a department store has never been as frantic as during holiday rush. Armed with the Christmas wish lists of friends and family, I braved the throngs of last-minute shoppers.

While deciding between a box of chocolates and a basket of fresh fruits, I noted that the 12% VAT can actually tip my purchasing decision. I started thinking of the high tax rates in the Philippines and my need to stretch my shopping budget. If the VAT rate is lower or if my bonus is tax free, I would be able to buy more gifts for my family and friends. My musings on how taxes affected my Christmas shopping led me to compile my Christmas wish list for our tax system. So here are my top three wishes with the hope that, in the spirit of Christmas, the powers that be would see fit to grant these wishes to taxpayers very soon.

First on the wish list is a lowering of income tax rates. Philippine tax rates remain one of the highest in the region. Our 30% corporate income tax, 12% VAT and 32% personal income tax are astoundingly high compared to our ASEAN neighbors. The high corporate tax and VAT rates drive the prices of commodities higher.

Conversely, high personal income tax decreases the take home pay of individuals, thereby depriving them of capacity to purchase essential products and services.

I often hear government representatives rationalize the high tax rates with the need to generate more funds which are crucial in delivering public services and building much-needed infrastructure. While public service is definitely important, the government should be able to balance the taxes it imposes on its citizenry with the latter’s capacity to pay such taxes and still live decently.

The high tax rate in a poor country such as ours is almost confiscatory. It discourages compliance when one has to choose between paying the correct taxes and being able to send children to good schools. It deprives citizens of the power to provide for themselves because their take home pay is substantially diminished. This diminished purchasing power then forces them to depend more on the government, creating a vicious cycle of increased dependency and pressure on government to generate more funds.

We should always remember that our tax system should be progressive. The poor and the middle class should never be taxed at the same level as the upper class. Unfortunately, our tax rates have remained stagnant for several decades blurring the lines between the poor, the middle class and the wealthy. The result is that a regular worker pays the same 32% personal income tax rate as that paid by the president of the company.

Second on my list is the simplification of the tax compliance requirements for small businesses and single proprietors. Our tax compliance rules do not differentiate between billion peso companies and small sari-sari stores. Both are subject to the same record keeping requirements, annual statutory audit and substantiation requirements.

We need to recognize that small entrepreneurs do not have the capacity to hire consultants and accountants just to keep their books and take charge of their tax compliance requirements. In fact, most small businesses are self-managed with hardly any employees. Imposing a myriad of confusing requirements for these small entrepreneurs discourages compliance. Small business owners desire to pay taxes. The need to legitimize springs from not just the aspiration to help in nation building but also from a personal desire to remove the constant fear of being raided or assessed because of non-compliance.

However, small business owners admit that they just don’t know where to start and how to comply with the multitude of requirements.

Often, small business owners are so focused on growing their business that they cannot keep up with the constant changes in the tax rules and various requirements. Hence, it is crucial to adopt simplified compliance requirements for small businesses to allow them to pay their taxes and comply with the rules. We should consider gross income taxation and simplified record keeping requirements.

Third on my list is the simplification of our complex and ever-changing creditable withholding tax system. The requirements to withhold taxes for payments to local suppliers of goods and services have become so complicated that even seasoned accountants find it difficult to identify the type of payment and the applicable rates.

Our rates are from 1% to 20%, and all possible rates in between. The types of payments subject to withholding taxes include most types of payments such as lease payments, payments to contractors, and payments to consultants. One needs to be a very savvy withholding tax expert just to be able to identify the type of transaction and the applicable withholding tax rates. It is a wonder how regular business owners can cope with constantly watching their payments and ensuring that the correct withholding taxes are paid.

To simplify the system, we should adopt a uniform rate of withholding tax for payments to local suppliers of goods and services, for example 1% for suppliers of goods and 2% for suppliers of services. The uniform rates minimize the guess work in our withholding tax system and simplify the process.

I am hopeful that my wish list will be granted. Our lawmakers seem to be receptive to change, and some have even acknowledged that the high tax rate is now a social justice issue. Buoyed by the optimism and cheerfulness of the holiday season, let me greet you a very Merry Christmas and a Happy New Year!

Eleanor L. Roque is a partner with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

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Having no job is never fun in the Philippines

One of the main reasons why I started my management consulting practice focusing on cross border investments to the Philippines is to create jobs and other income generating opportunities for the many still without one in the country. While there has been a decline (from 34.4% in 2012 to 22.9 now), more effort is needed if we are to reduce poverty and give a better quality of life for the many still looking for a job. I hope the many local business opportunities I try to match with Australian and other foreign investors will help address this need. Let’s work together to make this happen.

10.4 M Pinoys jobless – SWS

MANILA, Philippines – The unemployment rate in the country has been on a downward trend since 2012, according to the latest Social Weather Stations (SWS) survey that pegged the number of jobless adult Filipinos at an estimated 10.4 million.

The results of the SWS third quarter survey – published in BusinessWorld on Friday – said the unemployment rate in the country for September this year is at 22.9 percent, the lowest since the 21.7 percent recorded in September last year.

The latest survey result is lower by three points from the 25.9 percent unemployment rate recorded in the second quarter of 2014.

According to the SWS, the adult unemployment rate in the country has been on a downward trend since the record-high 34.4 percent recorded in March 2012.

The pollster said seven percent of the respondents involuntarily left their jobs, while 12 percent resigned. The survey was conducted from Sept. 26-29 among 1,200 respondents nationwide.

Optimism up

In addition to a lower unemployment rate, the latest survey results showed that optimism for work availability in the next 12 months improved.

The net optimism on job availability increased by eight points to a “fair” 12 from a “mediocre” four rating in the second quarter survey.

The SWS said 33 percent of the respondents think the number of jobs in the next 12 months will increase, while another 33 percent said it would stay the same.

Twenty-two percent of the respondents said they think job availability would decrease, while the remaining 12 percent of respondents said they have no idea.

PH Banking industry is among the strongest in Asia

Wow. The Philippine banking industry is among the strongest in the Asian region. But that’s a natural expectation given the lack of competition or innovation being in a closed regulated market. Let’s see how this may change with the deregulation and the opening of the market to foreign competition.

Phl banking system one of Asean’s strongest – HSBC

MANILA, Philippines – The Hongkong and Shanghai Banking Corp. (HSBC) said the Philippine banking system remains one of the strongest in the 10-member Asean with credit growth seen strengthenings in the next few years.

HSBC economist Frederic Neumann said Philippine banks possess excess liquidity with robust consumer demand growth while property prices continue to pick up steam.

“The Philippines is in a bucket of its own,” Neumann said in a recent report.

Liquid assets as a share of deposits have also increased, which implies that banks also have ample buffers – not to mention the robust external fundamentals on the sovereign side.

The Bangko Sentral ng Pilipinas (BSP) is currently the only central bank in Asia expected to hike rates next year. It has also implemented some macro-prudential measures to prevent asset bubbles.

“We don’t really worry about bank-related liquidity in the Philippines as banks are in better shape from a loan-to-deposit ratio (LDR) perspective,” the HSBC economist said.

The country is also in the process of further opening up the financial sector to foreign banks.

Last month, the Philippine government passed a law allowing foreign banks to operate in the country and to acquire up to 100 percent of a local lender from the previous ownership ceiling of 60 percent.

This move is in line with increased services integration with Asean under the Asean Economic Community (AEC), which is expected to come into force in end-2015.

Neumann said the increased foreign financial presence is quite timely, and provides an additional conduit for Japanese bank lending to flow into the Philippines to increase liquidity.

The global financial institution pointed out that LDRs have increased sharply in recent years in most Asean markets, and that the high-level of liquidity are likewise becoming tighter.

“These raise two immediate challenges,” Neumann said.

It means that high credit growth could lead to slow overall demand, and that it could render local financial systems more vulnerable to volatility in global markets and a sudden rise in funding costs.

In most of the Asean, deposit growth has slowed down thus constraining loan growth.

A low LDR generally signifies that a bank has excess deposits to deploy, and because deposits are relatively cheap and stable funding source, loan growth is easier to sustain.

When LDRs rise above 100, a bank can turn to wholesale or interbank markets to top up its funds. But this is risky and drives up the cost of funding. As a result, bank lending slows or at least becomes more sensitive to potential shocks.

Thailand has the highest LDR in the Asean while Singapore has a robust wholesale market as well as deep non-bank corporate and interbank lending channels.

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