‘Shadow economy’ a rich source of tax revenue—ADB

A study by the Asian Development Bank found that the Philippines has one of the highest tax rates in Asia, but the country’s untaxed underground economy is also among the largest in the world.

The study titled Taxation in Asia written by Jorge Martinez-Vazquez compared Asian countries with the rest of the world in terms of taxes, revenue collections, tax morale, and others.

Overall, tax burdens in Asia is among the lowest in the world, according to the study. But within the Asian region, there are significant disparities among countries in the tax–GDP ratio.

“In the most recent years, the average tax–GDP ratio in Asia has been approximately half that of European Union (15+ countries). It is also below the ratio for Africa and the Middle East, and for the Americas,” the study said.

It found that corporate income tax rate in the Philippines at 35 percent is among the highest in Asia, next only to Japan’s effective income tax rate of 40 percent.

This was higher compared to New Zealand’s 33 percent, China’s 33 percent, Thailand’s 30 percent, Australia’s 30 percent, Vietnam’s 28 percent, Malaysia’s 27 percent and Singapore’s 18 percent.

Value added tax in the Philippines at 12 percent is also higher than Australia’s 10 percent, Malaysia’s 10 percent, Singapore’s 7 percent, Thailand’s 7 percent and Japan’s 5 percent. However, it is slightly lower than New Zealand’s 12.5 percent and India’s 12.5 percent.

While the Philippines has high corporate income and value added tax rates in the region, it also has one of the largest underground economies.

The study estimated the shadow or untaxed underground economy of the Philippines at 43.4 percent of its gross national product in 2000, which was the third largest in the region next only to Thailand’s 52.6 percent and Sri Lanka’s 44.6 percent.

In comparison, Singapore’s shadow economy was only 13.1 percent while that of Japan was 11.3 percent. –Roderick T. dela Cruz, Manila Standard Today