Infra, investment constraints hinder business in Philippines – World Bank

MANILA, Philippines – The World Bank said the biggest constraints to improving the business climate in the Philippines are policy reforms revolving around investments and infrastructure.

“The most important priority is improving the business and investment climate, especially affecting infrastructure and investments,” World Bank chief economist for the East Asia and Pacific Region Sudhir Shetty said in a teleconference yesterday.

Shetty said the Philippine government must take another look at the revenue picture, collection levels, and increasing the country’s tax base.

The World Bank economist also cautioned the Philippines and the rest of emerging Asia in being too eager in giving tax incentives to new investments.

The World Bank had always maintained tax incentives should benefit the poorer segment of a nation.

Nevertheless, the country’s economic growth remains fairly robust although slower than expected.

Due to slowdown in public investments, the World Bank said Philippine economic growth would be in the vicinity of 5.8 percent in 2015, picking up to 6.5 percent in 2016 and six percent in 2017.

Meanwhile, Shetty said the World Bank forecasts economic growth in the East Asia region would be slightly moderate this year until 2017. For China, it would also slow to 6.7 percent in 2016.

Among the Asean nations, Vietnam and the Philippines would show relative robust growth while Thailand is expected to move in the opposite direction.

Meanwhile, Karl Kendrick Chua, senior country (Philippines) economist of the World Bank, said the second half economic performance would outdo the first semester as government ramp ups spending.

Weak public spending especially in infrastructure was one of reasons for the slower 5.3 percent growth in the January to June period.

Chua said the major risk factor is the El Nino weather phenomenon.

“A stronger El Nino is a major risk factor as this could hurt agriculture severely, much like the 1983 and 1998 episodes,” he said.

Chua said that the key response to El Nino in the immediate term is to ensure adequate food stock, especially through timely importation of rice and other key food items.“In the medium term, reforms in food policy and disaster-proofing infrastructure are essential.”

In response to the tax issues, the economist made several recommendations, including lowering the top marginal income tax to 25 percent.

He said that the World Bank recommendations intend to lower the rate while broadening the tax base.

Another recommendation is to rationalize tax incentives by making them more targeted, transparent, performance-based, and temporary, including the timely release of a tax expenditure statement, which enumerates all existing and proposed tax incentives and who benefits from them.

Chua also mentioned a reduction in the gap between the regular and special corporate income tax rates, and simplification of the tax regime for micro and small enterprises by moving to a single tax on turnover, for example, six percent in lieu of all other taxes.


By: Ted P. Torres

The Philippine Star | October 6, 2015