Smart taxation, not higher taxation: A reform agenda for competitiveness

By Mon Abrea

For years, the Philippines has debated tax reform primarily through the lens of revenue generation. But the more urgent challenge is structural: our tax system is overly complex, administratively costly, and vulnerable to discretion — conditions that weaken compliance, discourage investment, and enable corruption.

The country does not suffer from low taxation. It suffers from too many taxes, too many processes, and too little predictability.

Filipinos face more than 30 national and local taxes and fees administered by multiple agencies. For MSMEs, compliance costs often exceed actual tax liabilities. For investors, inconsistent enforcement raises risk premiums. For government, collections remain below potential despite relatively high statutory rates.

This is not a rate problem. It is a system design problem.

International evidence shows that simpler systems with lower distortion and stronger enforcement produce higher voluntary compliance and more sustainable revenue.

Reform should therefore focus on three pillars: modernization, rationalization, and integrity.

Modernization.

Manual audits should be replaced by risk-based, AI-assisted, and data-driven enforcement. Digital invoicing, real-time reporting, and analytics can target large-scale evasion while reducing unnecessary contact with compliant taxpayers. This lowers administrative costs and improves accuracy.

Rationalization.

Reducing the VAT rate from 12% to 10% while broadening the base and improving digital compliance can stimulate consumption without sacrificing collections. Higher income tax exemptions would increase disposable income and support domestic demand.

Distortionary taxes — including documentary stamp taxes on MSME financing, taxes on savings, travel taxes, and inconsistent local levies — should be removed or consolidated to reduce friction in investment and mobility.

At the same time, the Philippines should immediately adopt the OECD/G20 Global Minimum Tax to protect taxing rights over multinational enterprises and prevent profit shifting. Even a small share of the estimated global minimum tax pool could generate substantial incremental revenue.

Integrity and institutional reform.

Weak enforcement undermines both equity and credibility. Lifting bank secrecy for public officials and enabling interagency data sharing are necessary to detect illicit wealth and prosecute corruption efficiently.

A credible deterrence framework — including recovery taxes and forfeiture of unexplained wealth — signals that noncompliance carries consequences.

Structurally, policy makers should consider consolidating revenue functions into a professionally managed National Revenue Authority modeled after Singapore’s IRAS: insulated from political interference, performance-driven, and fully digital. Modern revenue agencies increasingly operate like technology organizations rather than traditional bureaucracies.

The objective is straightforward: lower compliance costs for honest taxpayers while increasing enforcement precision against high-risk actors.

This shift from “high rates and broad suspicion” to “lower rates and targeted enforcement” can improve competitiveness, expand the formal economy, and strengthen investor confidence.

For advisory firms like Asian Consulting Group (ACG), which work with both regulators and multinational investors, one consistent message emerges: predictability matters more than incentives. Capital flows to jurisdictions where rules are clear, stable, and fairly applied.

Smart taxation — not heavier taxation — is therefore the more effective growth strategy.

Done right, reform will not only raise revenue. It will reduce corruption risks, attract long-term investment, and position the Philippines as one of ASEAN’s most competitive economies.

That is the real dividend of tax reform.

Mon Abrea is a tax policy expert and founder and chief tax advisor of Asian Consulting Group, advising governments, multinational firms, and investors on tax reform and investment strategy. He holds degrees and executive training from Harvard University, Duke University, and University of Oxford.

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