PH drops in 'economic freedom' ranking due to corruption, tax burden: study


Posted at Feb 03 2019 04:15 PM

MANILA - The Philippines dropped 9 notches in the world's Economic Freedom ranking this year, settling at the 70th spot, due to issues in government integrity and taxes, among others, a recent study showed.

The Philippines occupied the 61st spot in 2018, but received a lower ranking this year due to "drops in scores for monetary freedom, government integrity, and the tax burden," data from the 2019 Index of Economic Freedom showed. 

The Philippines also received lower scores in judicial effectiveness, government spending, fiscal health, business freedom, and trade freedom.

"The absence of entrepreneurial dynamism thwarts development. Despite the adoption of some fiscal reforms, deeper institutional reforms are needed in interrelated areas: business freedom, investment freedom, and the rule of law," it said.

Rule of Law

The government's massive infrastructure program helped spur "strong economic growth", but "corruption and cronyism are pervasive," the study said.

Despite an independent judiciary, the Philippines has a "generally ineffective" rule of law as courts remain "vulnerable to political influence" and "anti-corruption measures are not enforced," it said.

"Courts are inefficient, biased, corrupt, slow, and hampered by low pay, intimidation, and complex procedures," it said.

"A few dozen leading families hold a disproportionate share of land, corporate wealth, and political power."

Government spending

The research also took into consideration higher taxes imposed against individuals and companies.

Individual income tax rates that rose by about 35 percent, while corporate taxes was at 30 percent, the study found.

Those in the Philippines also had to shoulder other dues such as "value-added and environmental taxes," it said. 

"The overall tax burden equals 13.7 percent of total domestic income," it said.

Despite the high tax rates, the government only spent 19.4 percent of the country's gross domestic product (GDP), while public debt accounted for 37.8 percent of GDP, it said.

Investment barriers

The cost of doing business in the Philippines and red tape were reduced through a series of reforms but "investment in several economic sectors is restricted," the research said.

"The government budgeted a record $3.03 billion in subsidies to state-owned enterprises in 2018 but decided to scrap agricultural subsidies," it said, noting that "many agricultural imports face additional barriers."

The study also noted that less than half of Filipino adults or 39 percent "have access to an account with a formal banking institution."

Investors are also "concerned about President Rodrigo Duterte’s heavy-handed rule," it said.

The Philippines fell behind its regional peers Malaysia, Thailand, Indonesia and Brunei, but was still ahead of first-world nations including China, Russia, France, and Italy.

"Its overall score is above the regional and world averages," it said.

Hong Kong, Singapore and New Zealand topped this year's chart that analyzed 180 economies around the world.

Cuba, Venezuela and North Korea - nations that were suffering from political and economic unrest - were on the bottom of this year's index.