Despite optimism for development, the Philippines continues to lag other major Southeast Asian countries in terms of infrastructure, per capita income, and other economic indicators. Could it be due to corruption? Security issues? Government instability? Overpopulation? The answer is probably yes to all; but other countries fare much worse with the above issues. Thailand and Malaysia, in recent years, have higher profile corruption scandals. Security perception had always been worse for most other countries. Vietnam, Cambodia, Myanmar suffered from years of war and turmoil. Indonesia has more than double the Philippines’ population.
Could it be due to taxes? The Philippines has the highest income tax rate in Southeast Asia. Is the country lagging behind because the citizens are being taxed too much?
The highest tax bracket in the Philippines is 32% for taxable income PHP 500,000 and above. If you live in another ASEAN country, how much will your marginal tax rate be if your taxable income (annual) is PHP 500,000?*
Singapore – 0% (this income is too low to be even taxed, you need to earn at least PHP 660,000 to be taxed 2%)
Malaysia – 10%
Thailand – 10%
Indonesia – 15%
Myanmar – 15%
Vietnam – 20%
Cambodia – 20% (the highest tax bracket)
Laos – 24% (the highest tax bracket)
Brunei – none (no personal income tax in Brunei, I suppose the Sultan pays for everything there)
*Using exchange rates as of September 4, 2015
Lower tax rates mean that citizens will have more disposable income to spend or use as capital. This in turn will spur economic development. Since the Philippine economy is highly dependent on the remittances of Overseas Filipino workers (OFW), the taxes from the income of these workers are paid where they earn it anyway.
The economy grows and sustains itself because of spending from the private sector – not from the Government collecting high taxes and the government officials deciding how to spend them. Have we not learned anything from collapsed Communist economies?
I’ll be fine with the high Philippine tax rates if the level of social services here is high. Sadly, that’s not the case. The Philippines is called the “sick man of Asia” for a reason. Despite the government’s very optimistic press releases, the country is still “sick”. Trust me, I’m a doctor.
There are pending bills in congress to adjust the tax rates and/or to increase the taxable income per bracket – they have not been adjusted since 1997.
Meanwhile, the Philippines continues to lead South East Asia not only in income tax rates, the country also has the highest electric power rates (in all of Asia). The country also has the most expensive internet (relevant to speed). I’m actually writing this post with a very slow and erratic internet connection (no thanks, Smart Bro!).
UPDATE: The Philippine government rejected the bill that will cut the income tax rates.(see news here) The government’s explanation behind the rejection is actually funny – but I prefer to cry.
High taxes coupled with poor government services never make sense. No wonder a lot of Filipinos continue to emigrate.
– Finance M.D., thefinancemd.com