Tuesday, March 04, 2008

Tax Cut 8: Comparing HK and Philippine Taxes

I have read a recent report by Horwath Hong Kong re some tax cuts and rise in exemption allowances in HK. Below are the tax changes; those in parenthesis are comments by a friend, Peter Wong, Exec. Dir. Of Lion Rock Institute (www.lionrockinstitute.org), HK’s first and only free market think tank.

1. No tax on dividends, capital gains, interest from banks and other
financial institutions (no change).

2. No tax on business registration (one-time).

3. No tax on wine, beer, other alcoholic beverages except spirits with
immediate effects [high alcohol content drinks] (permanent cut).

4. No hotel accommodation tax (permanent cut).

5. Higher ceiling for tax-deductible donations (permanent).

6. Lower corporate profits tax from 17.5 percent to 16.5 percent (back to 2002 level).

7. 100 percent profits tax deduction for capex of environment-friendly
machinery and equipment in the first year of purchase (newly introduce but some of us don't like it).

8. Reduce personal income tax from 16 percent to 15 percent (back to 2002 level).

9. Raise exemption allowances for individuals, single parents and
married persons.

10. Lower property tax from 16 percent to 15 percent (back to 2002 level).

When you compare HK's and the Philippines' tax policies on these items
alone, you can shake your head. Because in the Philippines:

1. There ARE taxes on dividends, capital gains, interest income on
bank deposits (20 percent).

2. There ARE taxes and fees on business registration -- with SEC, BIR
(Bureau of Internal Revenue), DTI, local governments, etc.

3. Att least double taxes on wine, beer, spirits -- excise tax and
value added tax.

4. There ARE hotel accommodation taxes -- VAT by the national government, and local government tax.

5. No change in ceiling on tax-deductible donations.

6. Corporate income tax raised from 32 percent to 35 percent by 2005; but will go down to 30 percent by 2009.

7. Am not aware of tax cut on environment-friendly equipment, but I
think there's none.

8. Personal income tax still at 32% top rate for annual gross income of
US$12,500 or more, after some deductions. If you have this annual income and after the state has removed the 32 percent tax, if you have 2 or 3 children and you're the sole bread winner, you can easily slide to poverty level!

9. Somehow, there is an increase in income tax exemption level.

10. Property tax is applied even to houses and condo units, unlike in HK where only the landowners and building owners are taxed.

In the Philippines, if you own your house or condo unit, you will pay real property tax (RPT) to the city or municipal government. If you own a house or condo and you rent it to other people, you will pay at least 3 taxes -- RPT, value added tax (VAT) for rentals above PhP10,000 per month, and income tax for your rental income. But many people pay only the RPT and do not pay the latter 2 taxes.

Meanwhile, I wrote this last February 28, 2008

Tax Havens, Why They are Important

In recent days and weeks, Germany and UK, even the US, have been pounding on a tiny European economy Liechtenstein for being a "tax haven" to many of their rich nationals and suspected tax cheats who park their big savings there which should have been heavily taxed in those countries.

Are tax havens just a way for the rich to escape their tax obligations in their countries, or do they serve some positive function in the global economy?

My vote is the latter, that tax havens have a positive function in the global economy. Some very hard-working and innovative people in rich and industrialized countries are unhappy that a big portion of their income and savings are automatically confiscated by their governments in the form of high and multiple taxes to pay a huge bureaucracy and other government programs that they may not be in favor of.

For these hard-working people, one option is to work less, earn less, and pay less taxes. But a better option for them is to continue working hard, produce more goods and services that many people in the world need, earn big, and put their extra savings in tax havens. This latter option serves the global economy better.

Many Western European and North American investors have started leaving their country and do business in Eastern Europe, in East Asia, other countries/regions where taxes are lower and business regulations are more relaxed. Others opted to stay put and park their extra savings in tax havens.

Some of those savings temporarily parked in tax havens are invested in poorer countries in Asia and South America, which helps creates jobs there, make more people richer, so that they can also buy imported goods and services by companies from high taxes countries like W. Europe and N. America, and those countries receive more tax revenues from those firms. This is what “tax havens serve some function in the global economy” means
* See also Tax Cut 7: Reduce Business Taxes, December 19, 2007

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