Local CEOs seek tax reforms

The increasing tax burden and overregulation are the two major concerns for sustainable growth in the Philippines, according a survey conducted by the international auditing firm PricewaterhouseCoopers (PWC) among the Philippines’ top business leaders.

The third concern is the availability of labor skills.

Majority, or 87 percent, of the chief executive officers (CEOs) surveyed expressed concern over the increasing tax burden and stressed the need to update the country’s tax system to a level that can compete with its neighbors.

The PWC noted that the country has the highest corporate-tax rate among members of the Association of Southeast Asian Nations (Asean), which, it said, was the reason business executives worry about the competitiveness of the Philippines’s tax structure.

Majority of the CEOs said the tax regime should be revisited to make it more business-friendly and encourage more investments, particularly in manufacturing.

There is currently a move in Congress to reform the tax system, specifically lowering personal individual taxes, adjusting tax brackets and making corporate taxes comparable with those in Southeast Asia. Several business groups, both local and international, including the Joint Foreign Chambers (JFC) and the Foundation for Economic Freedom (FEF), led by former Finance Secretary Roberto de Ocampo and economist Benardo Villegas, have expressed support for the move, as well as for the institution of revenue-raising measures to compensate for the expected losses.

But President Aquino has said he favored a status quo. Initially, his finance team suggested that a law be passed raising the current value-added tax (VAT) from 12 percent to 14 percent as a compensatory revenue-raising measure.

But the legislators promptly rejected this, as it would be political suicide for those among them who are joining next year’s political derby. Some senators are now pushing as a “quid pro quo” for Malacañang a law supporting the Bureau of Internal Revenue’s proposal to lift the bank-secrecy law, obviously to discourage tax frauds and thereby increase tax collections and make it easier to prosecute tax-evasion cases involving billions. (See separate story).

The PWC said it interviewed 96 local CEOs for the survey called “Innovation for transformation: A Philippine CEO Survey,” with 79 responding, while 17 were interviewed.

The survey showed 76 percent of respondents picked overregulation as their top concern.

“Some CEOs we interviewed think the country’s foreign investments negative list may need to be revisited to be more attractive to investors, particularly in the pharmaceutical and real-estate industries,” PWC said.

The other respondents said the country’s labor laws needed to be reformed to encourage productivity and continuous improvement, the PWC also said. Another top concern was the availability of key skills.

“Globally, CEOs are looking into increasing the headcount to support growth, but we are also looking at a broader set of skills in terms of recruitment,” it said.

The PWC quoted Hrishikesh Pradhan, managing director of Mega Lifesciences, as saying he believes Filipino workers have the skills, attitude and capability to do greater work if provided with the foundation and support to do so.

Raymund Azurin, Zuellig Pharma CEO, said education and good continuous support training would be “huge enablers” to further improve the country’s labor force.

PWC added that, while remittances from overseas Filipino workers (OFWs) have been a strong contributor to economic growth, “a number of CEOs believe that, in the future, the country has to find a way to bring back and retain key Filipino talents shared with the world.”

“We have great talent here in the country,” Kenneth Lingan, Google country head, said. “When you look at the 12 million OFWs, you would think that those jobs could have gone to any nationality, but Filipinos got them.” The survey also showed that CEOs in the Philippines were significantly more optimistic on business prospects than their global counterparts.

“Since 2004, the percentage of global CEOs who are confident about their growth prospects has been below 60 percent. For the Philippines, it’s 73 percent,” the survey showed.

PWC said “this optimism or the ability to see opportunities, despite threats, together with enthusiasm and passion,” is what keeps Philippine CEOs resilient.

The survey showed 52 percent of the respondents believe the government should focus on creating an “internationally competitive and efficient tax system.”

In the latest report from the World Bank group and PWC called “Paying Taxes 2015,” the Philippines’ overall rating dropped from 121 to 127 out of 189 economies, PWC said.

The report also said the Philippines’ total tax rate, which is the sum of profit tax, labor tax, and other taxes, was 42.5 percent, compared with 34.4 percent for other economies in East Asia and the Pacific.

PWC said most CEOs interviewed stressed the need to review and simplify the tax structure.

Raul Joseph Concepcion, Concepcion Industrial Corp. CEO, said “a simplification of the tax system is necessary to uplift the business community. The tax system needs to be revamped so that it will be fair to all.”

The survey also showed a larger 72 percent of the respondents indicating the government should prioritize the building of adequate infrastructure.

“Government spending on infrastructure increased from P192 billion in 2012 to P267 billion in 2013 and P356 billion in 2014,” PWC said.

“Despite this 85-percent increase over the past three years, a lot of work remains to be done,” the PWC said. TMM