The Philippines celebrated a 29-place jump in its Doing Business score in the World Bank’s 2020 report, having raised the country’s ranking from 124 to 95.
Looking at the increase in terms of scores might not seem too impressive — having gained 1.9 percentage points — but it still certainly deserves to be commended.
Of course, it is also important to break down the jump in rank.
The Philippines continues to have the seventh-highest Doing Business rank across the ASEAN Region, following Indonesia at 73rd place. This is not to take away the government’s win in the Doing Business 2020 rankings — but instead to emphasize just how many more reforms we will need to be competitive.
When looking at the breakdown of the Doing Business score, it is notable that the greatest contributor to the jump is the area of Protecting Minority Investors. The Philippines increased its score there by 16 percentage points, and its ranking from 132 to 72 (a 60-place jump in rankings).
When it comes to the Getting Credit index, the Philippines increased its rank by 52 places, but has not actually increased in score. This change is most likely due to corrections arising from the government’s grievances regarding the methodology of the Doing Business 2019 report.
Other than those, the only other indexes that increased in score are Starting a Business (two percentage points increase) and Dealing with Construction Permits (1.4 percentage points increase).
Dealing with Construction Permits showed a rank increase from 94 to 85, but Starting a Business actually presented a five-place slide from 166 to 171.
The rest of the Doing Business indices (Registering Property, Getting Electricity, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency) showed either no increase in scores or a minimal decrease.
As a tax reform advocate and co-chair of the Ease of Doing Business Taskforce on Paying Taxes, I would like to focus on one index in particular — the Paying Taxes index. In the Doing Business 2019 report, the Philippines ranked 94th across the world, the 5th highest in the ASEAN region.
In 2020, the Philippines ranked 95th across the world and was the 5th highest in the ASEAN region. While the score itself actually increased, it was only by 0.4 percentage points and was clearly not enough for the Philippines to maintain its 2019 rank.
Taking a look at the Paying Taxes indicators would suggest points for improvement that could help in the next Doing Business report.
The four indicators of the Paying Taxes index are Number of Payments, Time to Comply, Total Tax and Contribution Rate, and the Post-Filing Index.
The Paying Taxes indicators showed an improved performance in the Number of Payments and the Time to Comply, but has showed no change in the Post-Filing Index and a negative change in the Total Tax and Contribution Rate.
The number of payments was reduced by one, the time to comply was lessened by 10 hours, while the total tax and contribution rate increased by 0.2 percent.
Again, to check the Philippines’ actual performance, it is important to contextualize.
In the ASEAN region, only Singapore, Indonesia, and Vietnam increased in their Paying Taxes ranking. The largest jump in the Paying Taxes index is Indonesia, jumping 31 places from 112 to 81 and overtaking the Philippines and Brunei. Vietnam jumped from rank 131 to 109 (22 places).
The Doing Business report notes that the most significant factor for Indonesia’s performance is its implementation of an online filing and payment system for major taxes. For Vietnam, the improved score can be attributed to upgrading the information technology infrastructure of their revenue collection agency.
These tech developments — and similar projects — are crucial in making tax compliance easier.
Commuting is made convenient by ride hailing apps, shopping is made convenient by online stores, and takeout is made convenient by online delivery services. Going by the same line of thought, paying taxes should be made convenient by tax tech developments.
This is one area where the Bureau of Internal Revenue (BIR) can learn more from. Yes, it has the systems in place, but are those systems accessible and convenient to use?
In contextualizing the Paying Taxes, we can also look at the East Asia and Pacific Averages for each individual indicator. For the Number of Payments and the Time to Comply, the Philippines’ performance is actually above average. The main indicator that it has a problem with is the Total Tax and Contribution Rate (TTCR).
The Philippines tax rate is 43.1%, while the East Asia and Pacific Average stands at 33.6%. In fact, the Philippines’ TTCR is higher than the rates collected by OECD High Income Countries which is 39.9%.
Of course, since the TTCR is measured as taxes paid as percent of profit, it might also suggest that the lower score of OECD High Income Countries mean they have higher profits. However, other data clearly shows that the Philippines has a high corporate tax rate (and has the highest rate among the ASEAN).
This is another area where the government needs to catch up. Lowering the corporate income tax rate is long overdue, and it keeps getting delayed.
If unburdening the taxpayers is not enough of a reason, then look at competitiveness. The Philippines’ overall rankings may have increased significantly, but what of the actual indicators that affect regular taxpayers and the smaller businesses?
Yes, Paying Taxes can be improved by making transactions swifter, removing unnecessary forms, and other administrative changes. But if the problems are the high tax rates and the lack of push toward a proper digital transformation of the BIR, then it will not be enough.
A genuine tax reform requires both legislative and administrative reforms.
For its digital push, the BIR recently launched its latest initiative, Hack-A-Tax — a hackathon event where concepts to develop the best tax software will compete. For this project, the BIR has partnered with USAID, the Asian Consulting Group (ACG), and DevCon Philippines.
Even in its advocacy as a social enterprise, ACG maximizes technology to improve the taxpayer’s experience — be it in teaching them about taxes or in helping them comply. On December, ACG plans to launch, as part of its Digital Transformation initiatives, the TaxWhizPH Mobile App and its very own Tax Whiz Channel.
This article was originally published in BusinessWorld.