The Market Monitor Minding the Nation's Business
By Luis Leoncio
THE Philippines should reconsider its Bank Secrecy Law to enable it to tackle tax evasion and other financial crimes, such as money laundering and corruption, the Organization for Economic Cooperation and Development (OECD) said.
“Bank secrecy is dead,” said Richard Parry, head of OECD’s Global Relations Division in the Center for Tax Policy and Administration, in a briefing at the sidelines of the Asia-Pacific Economic Cooperation (Apec) Workshop on Fiscal Management Through Transparency and Reforms held at Las Casas Filipinas de Acuzar in Bagac, Bataan.
In moving for transparency in bank dealings in the Philippines, he noted that G20 countries have abolished their laws on bank secrecy to align with international standards. He disclosed that about 3.6 percent of global gross domestic product (GDP) is lost to illegal financial flows.
It is not easy for governments to tackle these issues, especially if there is lack of transparency, he said.
The ratings firm Standard and Poor’s (S&P), meanwhile, said in a report that while the credit quality of banks operating in the Philippines was improving, they were saddled with poor transparency, weak corporate governance, and inefficient legal infrastructure.
“In addition, credit risk in the system may increase if acceleration in property prices or credit growth is prolonged,” it said.
“Regarding industry risk, regulatory standards in the Philippines are broadly in line with international standards–and in some instances more stringent. However, inadequate legislation and legal protection for supervisory staff weaken the regulator’s ability to implement prudent measures,” S&P said in its report.
“The Philippine banking industry’s risk appetite is generally restrained, and banking products are straightforward. A high level of stable customer deposits supports banks’ funding profiles although banks have few funding alternatives,” S&P added.
Parry said the Philippines has to have a legislation in place to meet global standards on banking. He also said the government needed political will to meet new global standards.
The government has been very active in joining efforts to improve global standards on taxation, among other things, he said, but also needed to focus on its bank-secrecy regulations.
He explained that for the Philippines to have information exchanges with other countries, it has to change its transparency level on this issue, since having enough information is the first step in addressing challenges in tax administration globally.
Other key steps are for a country to know how to deal with the information as well as how to share that information with other countries.
“Transparency is the key to all of these,” he stressed.
On the plus side, Parry noted that the government had taken “big steps” on tax-related reforms such as strengthening tax administration and working with tax payers on these reforms.
These efforts, he noted, enabled the government to have a sound fiscal situation that, in turn, ensured that there were additional funds for social development programs.
“It is important that tax reform is done with the help of the people, to work on policies that will provide social benefits,” he said.
“At the end of the day it is tax collection and its use that underpins all social reforms like on health and education system,” he added.