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Investment incentives and effective tax rates in the Philippines: a comparison with neighboring countries

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  • Dennis Botman
  • Alexander Klemm
  • Reza Baqir

Abstract

This paper compares the general tax provisions and investment incentives in the Philippines to six other East Asian economies – Malaysia, Indonesia, Lao, Vietnam, Cambodia and Thailand. It finds 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. Two recently proposed tax reforms 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 would increase. Alternatively, replacing tax holidays with a general reduction in the corporate tax rate and accelerated depreciation would either not provide the same incentives or be very costly.

Suggested Citation

  • Dennis Botman & Alexander Klemm & Reza Baqir, 2010. "Investment incentives and effective tax rates in the Philippines: a comparison with neighboring countries," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 15(2), pages 166-191.
    • Handle: RePEc:taf:rjapxx:v:15:y:2010:i:2:p:166-191
    DOI: 10.1080/13547861003700299
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    Cited by:

    1. Mr. Manuk Ghazanchyan & Mr. Alexander D Klemm & Yong Sarah Zhou, 2018. "Tax Incentives in Cambodia," IMF Working Papers 2018/071, International Monetary Fund.
    2. Rosa Alonso i Terme, . "Tax Policy for Good Governance, Job Creation and Inclusive Growth," PCED Policy Notes, Philippine Center for Economic Development.
    3. Mr. Takuji Komatsuzaki, 2016. "Improving Public Infrastructure in the Philippines," IMF Working Papers 2016/039, International Monetary Fund.
    4. Stausholm, Saila Naomi, 2017. "Rise of ineffective incentives: New empirical evidence on tax holidays in developing countries," SocArXiv 4sn3k, Center for Open Science.
    5. International Monetary Fund, 2012. "Philippines: Technical Assistance Report on Road Map for a Pro-Growth and Equitable Tax System," IMF Staff Country Reports 2012/060, International Monetary Fund.
    6. Briones, Roehlano M., 2016. "Growing Inclusive Businesses in the Philippines: The Role of Government Policies and Programs," Research Paper Series DP 2016-06, Philippine Institute for Development Studies.
    7. Takuji Komatsuzaki, 2019. "Improving Public Infrastructure in the Philippines," Asian Development Review, MIT Press, vol. 36(2), pages 159-184, September.
    8. Alvaro Cuervo-Cazurra & Bernardo Silva-Rêgo & Ariane Figueira, 2022. "Financial and fiscal incentives and inward foreign direct investment: When quality institutions substitute incentives," Journal of International Business Policy, Palgrave Macmillan, vol. 5(4), pages 417-443, December.
    9. Danileen Kristel C Parel, 2017. "Evaluation of Fiscal Incentives in the Philippines," Working Papers id:12068, eSocialSciences.
    10. Athiphat Muthitacharoen, 2023. "Location Choice And Tax Responsiveness Of Foreign Multinationals: Evidence From Asean Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(01), pages 217-242, March.
    11. 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.
    12. repec:zbw:rwirep:0389 is not listed on IDEAS
    13. Masaaki Suzuki, 2013. "Corporate Effective Tax Rates in Asian Countries," KIER Working Papers 875, Kyoto University, Institute of Economic Research.
    14. Pritha Mitra, 2010. "How Can Regional Public Expenditure Stimulate FDI in the Mekong?," Chapters, in: Suiwah Leung & Ben Bingham & Matt Davies (ed.), Globalization and Development in the Mekong Economies, chapter 5, Edward Elgar Publishing.
    15. Percival Pineda, 2017. "Financial liberalization and private sector borrowing in ASEAN 4 economies 1990–2012," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 277-295, August.
    16. 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 Limited, vol. 28(1), pages 53-78, January.
    17. Parel, Danileen Kristel C., 2017. "Evaluation of Fiscal Incentives in the Philippines," Discussion Papers DP 2017-26, Philippine Institute for Development Studies.
    18. Alexander Klemm, 2010. "Causes, benefits, and risks of business tax incentives," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(3), pages 315-336, June.
    19. Athiphat Muthitacharoen, 2017. "Assessing the Importance of Taxation on FDI: Evidence from South-East Asian Developing Countries," PIER Discussion Papers 65, Puey Ungphakorn Institute for Economic Research.
    20. Nguyen-Thanh, David & Strupat, Christoph, 2012. "Is the Burden Too Small? – Effective Tax Rates in Ghana," Ruhr Economic Papers 389, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    21. Briones, Roehlano M., 2016. "Growing Inclusive Businesses in the Philippines: The Role of Government Policies and Programs," Discussion Papers DP 2016-06, Philippine Institute for Development Studies.
    22. Adriana Giurgiu, 2012. "Investment Incentives and the Global Competition for Capital – By K.P. Thomas," Journal of Common Market Studies, Wiley Blackwell, vol. 50(1), pages 190-190, January.
    23. Suzuki, Masaaki, 2014. "Corporate effective tax rates in Asian countries," Japan and the World Economy, Elsevier, vol. 29(C), pages 1-17.

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