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Investment Incentives and Effective Tax Rates in the Philippines; A Comparison with Neighboring Countries

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

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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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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  1. 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.
  2. 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.
  3. Antonio Estache & Vitor Gaspar, 1995. "Why Tax Incentives Don't Promote Investment in Brazil," ULB Institutional Repository 2013/44076, ULB -- Universite Libre de Bruxelles.
  4. Rafaelita M. Aldaba, 2006. "FDI Investment Incentive System and FDI Inflows : The Philippine Experience," Finance Working Papers 22335, East Asian Bureau of Economic Research.
  5. 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.
  6. Alexander Klemm, 2008. "Effective Average Tax Rates for Permanent Investment," IMF Working Papers 08/56, International Monetary Fund.
  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. Mintz, Jack M, 1990. "Corporate Tax Holidays and Investment," World Bank Economic Review, World Bank Group, vol. 4(1), pages 81-102, January.
  9. Nigel Andrew Chalk, 2001. "Tax Incentives in the Philippines; A Regional Perspective," IMF Working Papers 01/181, International Monetary Fund.
  10. Bernstein, Jeffrey & Shah, Anwar, 1993. "Corporate tax structure and production," Policy Research Working Paper Series 1196, The World Bank.
  11. Devereux, Michael P. & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
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