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

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Author Info
Alexander Klemm
Dennis P. J. Botman
Reza Baqir

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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.

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Publisher Info
Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/207.

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Length: 34 pages
Date of creation: 05 Sep 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/207

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Related research
Keywords: Philippines ; Investment incentives ; Tax rates ; Corporate taxes ; Tax reforms ; Revenue sources ; Southeast Asia ; Working Paper ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer, vol. 10(2), pages 107-26, March. [Downloadable!] (restricted)
    Other versions:
  2. Nigel Andrew Chalk, 2001. "Tax Incentives in The Philippines: A Regional Perspective," IMF Working Papers 01/181, International Monetary Fund. [Downloadable!]
  3. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Alexander Klemm, 2008. "Effective Average Tax Rates for Permanent Investment," IMF Working Papers 08/56, International Monetary Fund. [Downloadable!]
  5. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier. [Downloadable!] (restricted)
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  6. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, Oxford University Press, vol. 4(1), pages 81-102, January.
  7. Bernstein, Jeffrey & Shah, Anwar, 1993. "Corporate tax structure and production," Policy Research Working Paper Series 1196, The World Bank. [Downloadable!]
  8. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February. [Downloadable!] (restricted)
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  9. Aldaba, Rafaelita Mercado, 2006. "FDI Investment Incentive System and FDI Inflows: The Philippine Experience," Discussion Papers DP 2006-20, Philippine Institute for Development Studies. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexander Klemm, 2009. "Causes, Benefits, and Risks of Business Tax Incentives," IMF Working Papers 09/21, International Monetary Fund. [Downloadable!]
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