Govt drafting bill to take back OFWs' tax-exempt privilege

Manila Times
Wednesday, December 07, 2005

Govt drafting bill to take back OFWs’ tax-exempt privilege
By Dennis C. Serfino, Reporter

INTENSIFYING efforts to increase its tax revenues, the Philippine government may soon impose taxes on high-income overseas Filipino workers (OFWs), including business executives and entertainers.

This measure is expected to raise additional revenues of between P5 billion and P10 billion each year.

“I don’t think they would mind paying taxes because they used to anyway,” said a government economist, who cited such examples as Broadway performer Lea Salonga and former finance secretary Jose Isidro Camacho, who now works as a managing director for investment bank Credit Suisse First Boston in Singapore.

To do this, Congress must repeal Republic Act 8424, or the Tax Reform Act of 1997, which provides wide-ranging tax breaks to different groups, including OFWs. Section 23 of the law stipulates that a nonresident Filipino citizen will be taxed only on income derived from sources within the Philippines.

The government economist, who asked not to be named, said a draft bill is being prepared to repeal R.A. 8424. The measure would specify the threshold amount that would qualify an OFW as a high-income earner.

Remittances from OFWs coursed through banks rose 28 percent year on year to $941 million in September. This brought the nine-month level to $7.9 billion, up 28 percent from the comparable level in 2004.

The Bangko Sentral ng Pilipinas projects this amount to hit $10.3 billion for the full year, a growth of 20 percent from $8.5 billion last year.

Preliminary data from the Philippine Overseas Employment Administration showed that in September, the total number of deployed workers rose year on year by 5.2 percent to 77,830.

The total number of deployed land-based workers grew 5.7 percent to 58,281, while sea-based workers rose 3.7 percent to 19, 549.

Outlook upgrade in first quarter

Meanwhile, financial services firm ING Bank expects international credit-ratings agencies to upgrade their outlook on the Philippines in the first quarter of 2006.

“We’re expecting that the negative outlook will be lifted soon. The first rating action probably would be the upward revision in the rating outlook of Moody’s [Investors Service]. We think that will occur probably January or February,” said Tim Condon, ING Bank’s chief economist and head of research for Asia on the sidelines of a conference of global financial executives in Makati City.

ING Bank also projects the Philippine economy to grow between 5 percent and 6 percent next year as the oil price shock fades.

Condon said. The peso may average at 53.80 to the dollar this year and move north of that exchange rate in 2006.