The Philippines Tax Reform Act of 1997

The Philippines are a group of islands in Southeast Asia which have been an independent country since 1946. Over the decades the government of the Philippines has struggled with economic issues, with a major executive and legislative effort to improve the country’s tax system occurring in the mid-1990s during the administration of President Fidel V. Ramos.

Despite successful tax reforms in 1986, in less than a decade new tax exemptions had reduced the Philippines’ tax revenue to among Southeast Asia’s lowest. In February 1994, a presidential task force was charged with developing a new Comprehensive Tax Reform Program (CTRP) to increase revenue by adjusting and simplifying the tax code. Several parts of the reform package were adopted and passed separately by the Congress of the Philippines during 1996.

Republic Act No. 8424 of the Tax Reform Act of 1997 was passed in December 1997, in the midst of the Asian financial crisis. It implemented a gradual rate reduction from 35 percent to 32 percent for both corporate income and the top margin of individual income. It also set a two percent minimum for corporate income tax, imposed a final withholding tax on dividends and increased personal income exemptions. However, key provisions of the CTRP recommendation were missing from the final act. Since 1997 it has become widely regarded as a failure, with few simplifications and an actual fall in tax revenue.