Anger over Philippine flood fund theft fuels debate on unfair tax system

Public anger in the Philippines over the multibillion-peso flood-control scandal has reopened a debate that has simmered for years: will this finally force politicians to tackle a tax system many Filipinos see as unfair, inefficient and tilted against them? A Senate inquiry late last year heard that politicians and local officials had worked with contractors to siphon off at least 200 billion pesos (US$3.5 billion) earmarked for flood-control projects across the country, with some structures allegedly never built, poorly constructed or placed in the wrong areas. The revelations – touching a programme meant to shield communities from chronic flooding – drew thousands into the streets to protest what they called the theft of “people’s money”. Since then, tax reform has re-emerged as part of the public conversation. On Tuesday, President Ferdinand Marcos Jnr allowed congress to fast-track a bill abolishing the travel tax, long criticised by overseas Filipino workers and holidaymakers. For some, the move signalled responsiveness but for others, it looked cosmetic. “Moves like ending the travel tax feel more like a pressure-valve response than real reform,” said Jonathan Ravelas, a retired research director of the country’s biggest bank, BDO, who is now managing director of eManagement for Business and Marketing Services. “It’s an easy win that shifts the headline without fixing the underlying problem. The truth is, we still carry too many outdated taxes – from the travel tax to documentary stamp duties and fragmented local fees – that add cost but deliver little public value.” The travel tax, administered by the Tourism Infrastructure and Enterprise Zone Authority, is charged on many departing travellers, with rates going up to 2,700 pesos (US$47) depending on the class of travel. Trapped in a tax web Scrapping it would remove one visible irritation but economists say the deeper grievance lies elsewhere. They say Filipinos are subject to a web of levies that shape everyday life, starting with value-added tax (VAT). “We have the highest in the region at 12 per cent,” said Cielo Magno, a former finance undersecretary who now teaches economics at the University of the Philippines. VAT is unavoidable, according to Sonny Africa, research director of the economic think tank Ibon Databank. “You have no choice – if you want to eat something, you have to pay the [VAT] when you buy it,” he said. “Our biggest issue lies in our overreliance on consumption taxes: VAT, fuel excise and transport taxes make for a higher cost of living,” said Ser Percival Pena-Reyes, assistant professor at the economics department of Ateneo de Manila University. “Poorer households spend a larger share of their income on taxed goods. It makes the system regressive, even if income tax brackets look progressive.” Part of the reason was that the country’s tax system was rooted in the colonial past, he said. “Under Spanish and American rule, taxation in the Philippines was mainly about extracting revenue, not developing the economy. Taxes were used to fund colonial administration and exports, not broad public services. Land taxes and indirect taxes hit ordinary Filipinos hardest. All of these created a long-lasting pattern: people paying taxes without seeing proportional benefits.” Filipinos are considered overtaxed, Magno said, because “the quality of service we get from the government is not commensurate to the tax we pay”. Philippine taxes are also full of loopholes for the rich and target a very narrow base, according to Africa. “The tax burden actually falls on ordinary Filipinos, middle class, probably the smaller businesses … The rich and the corporations, they can get away with not paying taxes – you know someone in the Bureau of Internal Revenue, you cook your books, all of that.” While Philippine taxes were closer to the Asean average from the 1990s to early 2000s, Ravelas said the system ballooned as the economy struggled to keep up with government spending. “We didn’t set out to be a high‑tax country – we became one by accident,” he said. “Decades of revenue pressures, weak tax administration, and a narrow tax base pushed government after government to layer more taxes instead of fixing old ones. The result: a system that feels heavy, complex and outdated.” While some taxes were justified, many were not, he said. “The problem is duplication and inefficiency – too many small taxes, fees and permits that raise little money but create big friction.” Filipinos have tolerated the situation because “people feel powerless to change the system so they just comply, or find informal workarounds”, according to Ravelas. “It’s resignation, not acceptance.” Feeding the corrupt Corruption is another problem, the analysts say. “[It] drains so much from where the tax is supposed to be spent,” Africa said. One reason rates remained high was to sustain a corrupt system, he said. “I think there’s a lot of pressure from corrupt government officials to … make sure there’s a pot to dig your fingers in.” In 2019, deputy ombudsman Cyril Ramos estimated that annually, the Philippines lost around 700 billion pesos – or 20 per cent of its total budget then – to corruption. In July last year, then finance secretary Ralph Recto said: “We make sure that every peso of the people’s taxes is put to good use and felt by the public.” Weeks later, the flood control projects scandal broke. At a September budget hearing, local media reported Recto expressed “dismay” over the scandal, estimating that it might have cost the government over a hundred billion pesos from 2023 to 2025. Critics said the magnitude of these issues has left policymakers facing a fundamental question of credibility. “Legitimacy collapses when we pay all of these taxes but get lousy services,” Pena-Reyes said. “The ordinary taxpayer asks a simple question: what am I really getting back when public transport is poor, healthcare still requires out-of-pocket payments, and corruption cases go unpunished?” Even government officials have acknowledged the need for change. “It’s high time for a tax reform,” then finance secretary Cesar Purisima told an economic briefing in 2015. “I’m not debating with you that there is nothing wrong with our tax system. Reform is needed.” Reform, however, would require much more than dropping a single levy. Filipinos should “lobby for reforms … what we need to do is broaden the base, lower the rate”, Magno said. Africa argued that the focus should shift upwards. “[What’s] most important is we should actually demand higher taxes on the rich … demand a billionaire wealth tax,” he said. With public anger still raw, Ravelas said the test would be whether outrage could be sustained. “The real challenge is turning public outrage into long-term pressure for cleaner spending and a simpler, more transparent tax system.”

Anger over Philippine flood fund theft fuels debate on unfair tax system

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Abolishing the much maligned travel tax is a good start but the whole system needs an overhaul, critics say

Abolishing the much maligned travel tax is a good start but the whole system needs an overhaul, critics say