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Investment Incentives and Effective Tax Rates in the Philippines

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Author Info

  • Alexander Klemm
  • Dennis P. J. Botman
  • Reza Baqir

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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Bibliographic Info

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

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Length: 34
Date of creation: 01 Sep 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/207

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Related research

Keywords: Corporate taxes; Tax reforms; Revenue sources; tax rates; tax incentives; tax rate; taxation; investment incentives; taxable income; accelerated depreciation; income tax rate; tax system; corporate tax; fiscal incentives; discounted value; depreciation allowances; fiscal incentives for investment; tax policy; corporate tax rate; tax administration; investment projects; investors; foreign direct investment; tax credit; tax base; direct investment; tax credits; investment allowances; retained earnings; local taxes; investment promotion; tax avoidance; rate of return; institutional reform; investment decisions; foreign investment; economic zone; economic zones; revenue collection; government revenue; investment priorities; investment promotions; investment climate; business taxation; statutory tax rate; cost of capital; fiscal cost; special economic zones; investment promotion agency; tax on capital gains; tax on dividends; reforms of tax administration; tax payment; fiscal authority; tax returns; international investors; fiscal affairs; fiscal affairs department; fixed costs; tax revenues; tax authorities; tax competition; foreign investors; investment climate assessment; export processing zones; capital expenditure; import duty exemptions; corporate tax structure; business investment; investment promotion agencies; tax payments; tax structure; depreciation methods; rates of return; fixed assets; international norms; tax regime; public finance; domestic investment;

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References

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  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.
  2. Bernstein, Jeffrey & Shah, Anwar, 1993. "Corporate tax structure and production," Policy Research Working Paper Series 1196, The World Bank.
  3. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
  4. Alexander Klemm, 2008. "Effective Average Tax Rates for Permanent Investment," IMF Working Papers 08/56, International Monetary Fund.
  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.
  6. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, World Bank Group, vol. 4(1), pages 81-102, January.
  7. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer, vol. 1(3), pages 211-225, October.
  8. Renato E. Reside Jr., 2006. "Towards Rational Fiscal Incentives (Good Investments or Wasted Gifts?)," UP School of Economics Discussion Papers 200601, University of the Philippines School of Economics.
  9. Aldaba, Rafaelita M., 2006. "FDI Investment Incentive System and FDI Inflows: The Philippine Experience," Discussion Papers DP 2006-20, Philippine Institute for Development Studies.
  10. Nigel Andrew Chalk, 2001. "Tax Incentives in the Philippines," IMF Working Papers 01/181, International Monetary Fund.
  11. Antonio Estache & Vitor Gaspar, 1995. "Why Tax Incentives Don't Promote Investment in Brazil," ULB Institutional Repository 2013/44076, ULB -- Universite Libre de Bruxelles.
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Citations

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Cited by:
  1. Somaya Ahmed Aly Abdel-Mowla, 2012. "The Egyptian tax system reforms, investment and tax evasion (2004-2008)," Journal of Economic and Administrative Sciences, Emerald Group Publishing, vol. 28(1), pages 53-78, May.
  2. Masaaki Suzuki, 2013. "Corporate Effective Tax Rates in Asian Countries," KIER Working Papers 875, Kyoto University, Institute of Economic Research.
  3. David Nguyen-Thanh & Christoph Strupat, 2012. "Is the Burden Too Small? – Effective Tax Rates in Ghana," Ruhr Economic Papers 0389, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Alexander Klemm, 2010. "Causes, benefits, and risks of business tax incentives," International Tax and Public Finance, Springer, vol. 17(3), pages 315-336, June.

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