The Philippines will follow Indonesia’s lead in implementing a tax amnesty as it seeks to boost revenue to pay for its ambitious spending plans, Finance Secretary Carlos Dominguez said.
The government will target tax evaders and beef up compliance before adopting an amnesty program, which will probably be very similar to Indonesia’s, Dominguez said in an interview with Bloomberg Television’s Haslinda Amin in Cebu, Philippines, on Friday.
Referring to tax evaders, Dominguez said “the tax amnesty will not work if they don’t believe you can actually go after them.”
“First we go after them, show that this government means business and has the political will to stop tax evasion,” he said.
Indonesia’s nine-month tax amnesty boosted government revenue by more than $10 billion. It allowed citizens to put their tax affairs in order and pay a penalty rate of as low as 2 percent when they declare previously hidden assets. The plan was seen as largely successful with more than 970,000 people participating.
Dominguez is boosting tax compliance and pushing through a tax reform plan to help ward off a credit-rating downgrade as the budget deficit widens. The government filed a criminal complaint against cigarette-maker Mighty Corp. last month for not paying almost P10 billion of taxes.
Dominguez said authorities would probably file more cases against the company and would also pursue “big-ticket items” in the power sector.
The government needs funds to pay for $160 billion of infrastructure projects. The Philippines had a tax revenue ratio of 13.6 percent of gross domestic product in 2014, which is lower than other regional peers, such as Malaysia and Thailand, according to data from the World Bank.
Philippine equities can lose their tag as the only emerging Asia market to suffer foreign fund outflows this year—with a helping hand from President Rodrigo Duterte.
Strategists say progress on Duterte’s promised tax reforms is needed to bring back global asset managers, who have offloaded $213 million of Manila-listed equities in 2017 while pouring $6.8 billion into India and $1.4 billion into Malaysia. Investors are also looking for company profit growth to justify an index valuation that’s at the widest premium to emerging market peers in six months. Philippine stocks fell today, halting a three-day rally.
“The Philippines is a very attractive market to invest in but there are more obviously better opportunities elsewhere and there have been some headwinds in terms of the tax reform not passing, the earnings momentum depleting and also geopolitical risks,” Vanessa Donegan, who helps manage $456 billion as managing director at Columbia Threadneedle Investments, said. “We like the Philippines for its potential for increased infrastructure spending but how will the government get to finance that without getting this tax reform package through?”