Expert says Philippine tax system a ‘complicated mess’

An internationally acclaimed economist has opined that the country’s tax system was a “complicated mess,” suggesting that the government should adopt a simplified and flat taxation scheme to shore up revenues and fund more development initiatives.

John Nye, a professor of economics at George Mason University in the United States and who has had several articles published in international journals, said in a lecture in Manila Tuesday that the country could benefit from higher revenue collection if the tax system were simplified.

He said the country’s existing tax structure, where different tax rates are imposed on different income levels and on different industries, could be one of the reasons hampering the full potentials of revenue collection by the government.

Nye suggested that the government impose the same tax rates on all income earners. Such a move could effectively reduce the tax obligation of some sectors; however, he said, the simplified scheme would make it easier for everyone to pay taxes, thus encourage tax compliance and shore up revenue collection.

“Simplification may reduce tax rates but it will also increase overall collection,” Nye said during the lecture held at the Bangko Sentral ng Pilipinas.

Nye also observed that under the country’s tax system, the more advanced business sectors such as those composed of multinational companies were taxed more while the less progressive ones such as agriculture were taxed much less.

He said the message being sent by such a tax system was for people not to pursue advancement and modernization because such a move would be penalized by higher taxes. Nye said it was ideal to impose the same tax rates on different sectors.

Meantime, Nye suggested that the government pursue more policies that would open the economy to foreign investors and trade. Such policies include reducing tariffs, pursuing more privatization and allowing more foreign investors to do business in the country.

Nye said opening up to foreigners, particularly by easing the rule that limits the equity participation of foreign investors in the country and controls the participation of foreigners in the domestic labor market, would help generate more jobs and boost incomes.

Nye said it would help for policymakers to experiment on policy reforms.

“For instance, why not invite Chinese companies to invest in the country and, in return, allow them to hire Chinese to account for 30 percent of their workforce,” he said, noting that such a policy would mean 70 percent of their manpower requirement would be composed of Filipinos.

Nye said the most efficient economies were those that implemented prudent and simple rules and strictly enforced them.