[Ask the Tax Whiz] Corruption is the Philippines’ largest hidden tax

If corruption is the biggest hidden tax on Filipinos, then preventing corruption decisively often is the strongest tax reform the Marcos Jr. administration can ship

An open letter to President Ferdinand Marcos Jr.

Mr. President:

The Philippines stands at a defining second in its financial historical past.

As of March 2026, the World Financial institution says the Philippines has moved nearer to upper-middle-income standing, with GNI per capita at $4,470. This enchancment displays a long time of progress and the resilience of the Filipino individuals. But numbers alone don’t assure shared prosperity. Corruption that weakens establishments, discourages funding, and erodes public belief threatens to go away thousands and thousands behind. The time is now to implement significant tax reform, confront corruption head-on, and guarantee each Filipino reaps the advantages of this hard-earned development.

For this reason I write to you once more — my third open letter — not as a political critic, however as a reform advocate who believes your administration has a historic alternative to confront the biggest hidden tax imposed on the Filipino individuals: CORRUPTION.

Recognizing the reforms your administration has begun

Permit me first to precise my gratitude. In my earlier letters, I raised considerations and proposals geared toward defending Filipino taxpayers and enhancing the nation’s funding local weather. Your administration listened — and extra importantly, acted.

• You moved to droop pointless BIR audit, defending compliant companies from disruptive and dear investigations.
• You supported the transition towards data-driven, risk-based tax enforcement, permitting authorities to concentrate on critical tax evasion.
• You licensed the abolition of the journey tax as precedence laws, eradicating an outdated burden and strengthening the competitiveness of the tourism sector.

These reforms could appear technical, however they ship a transparent sign to traders and the worldwide group: your administration is ready to modernize coverage and take heed to reform advocates. For that, Mr. President, I sincerely thanks.

Corruption: The most important financial leak

Regardless of robust financial fundamentals, corruption stays some of the vital limitations to inclusive development.

• The IMF estimates that corruption can cut back authorities revenues by as a lot as 4% of GDP.
• The OECD warns that it undermines tax assortment, distorts markets, and discourages funding.
• Transparency Worldwide confirms that international locations with stronger transparency and governance entice far larger overseas funding.

Within the 2025 Corruption Perceptions Index, the Philippines scored 32/100, rating one hundred and twentieth out of 182 international locations, far beneath the worldwide common of 42 and trailing ASEAN leaders corresponding to Singapore (84), Vietnam (81), and Timor‑Leste (73). Forward of just a few neighbors like Cambodia and Myanmar, this rating is a stark reminder that with out decisive motion, corruption continues to weaken establishments, discourage funding, and erode public belief.

Corruption features like a hidden parallel tax: it raises enterprise prices, diverts public funds supposed for infrastructure and social providers, and discourages each home and overseas funding. For presidency, it leads to misplaced revenues from smuggling, tax evasion, procurement irregularities, and inefficiencies in establishments such because the BIR and Bureau of Customs. 

When revenues are misplaced, governments typically borrow extra or improve taxes — often on compliant taxpayers.

Modernizing the Philippines’ funding technique

To turn out to be a premier funding vacation spot in Asia, the Philippines should strengthen the establishments that entice international capital. PEZA has been a cornerstone of export-oriented development for almost three a long time:

• Almost 13% of nationwide GDP
• Greater than 50% of export items
• Roughly one-third of service exports

These zones host 1000’s of multinational firms, generate employment, and combine the Philippines into international provide chains. However with provide chains shifting, digital industries increasing, and climate-resilient infrastructure turning into important, the Philippines should modernize the authorized framework governing financial zones. Proposed amendments to the Philippine Financial Zone Authority (PEZA) Legislation are well timed and strategic, positioning the nation to draw higher-value investments and innovation-driven industries.

Structural tax reforms to strengthen the financial system

Past funding coverage, the Philippines wants deeper structural reforms to unlock development, fairness, and good governance:

Combat corruption decisively:

1. Elevate financial institution secrecy legal guidelines and launch a nationwide audit and investigation focusing on corrupt politicians, their household companies, marketing campaign donors, and authorities contractors who’ve amassed ill-gotten wealth.
2. Mandate the Bureau of Inner Income (BIR) to file tax evasion instances, making certain that unexplained wealth—a prima facie proof of tax evasion—perpetually disqualifies these people from holding public workplace.

Simplify and modernize taxation:

1. Cut back the VAT fee from 12% to 10%, rationalize exemptions, and supply focused help to senior residents and PWDs.
2. Permit all Filipinos to earn their first ₱1 million tax-free.
3. Provide SEPs and MSMEs a ten% flat tax choice in lieu of revenue tax and VAT, supported by simplified digital accounting.
4. Absolutely implement digital invoicing as mandated beneath the TRAIN regulation.

Digitize and optimize tax enforcement:

1. Transition to a completely data-driven, risk-based tax enforcement system utilizing AI and blockchain, prioritizing large-scale tax evaders, smugglers, and illicit monetary networks.
2. Set up a Nationwide Income Authority, integrating tax and customs administration via trendy digital techniques.
3. Combine the Nationwide ID with taxpayer identification, making certain honest taxation and extra exact supply of social help to susceptible residents.

I additionally urge financial managers and Congress to help daring reforms — together with PEZA modernization — to strengthen funding establishments, simplify the tax system, and guarantee enforcement applies equally to all.

Restoring public belief in authorities

Financial reform should be accompanied by institutional reform. The Philippines should confront political dynasties and entrenched corruption. Public workplace must not ever protect these accused of corruption; those that steal from the Filipino individuals should face justice. Restoring belief requires making use of the regulation equally to all, together with highly effective political actors and their enterprise pursuits.

A defining second in your Presidency

Mr. President, the Philippines is near reaching upper-middle-income standing. Whether or not this milestone interprets into actual, inclusive prosperity relies on the integrity of our establishments and the braveness of our reforms. The window for transformative change continues to be open, and primarily based in your administration’s response to my earlier letters, I consider you may have each the chance and duty to grab it.

In the long run, the true measure of progress just isn’t solely the statistics we rejoice — however the establishments we construct and the alternatives we create for each Filipino. If corruption is the biggest hidden tax on Filipinos, then preventing corruption decisively often is the strongest tax reform your administration can ship to make sure that the Philippines’ standing advantages all residents.

Respectfully,

Mon Abrea, CPA, MBA, MPA
World Tax Coverage Knowledgeable and Chief Tax Advisor, Asian Consulting Group (ACG)
Harvard | Oxford | Duke

Mon Abrea is a World Tax Coverage Knowledgeable and Chief Tax Advisor of the Asian Consulting Group (ACG), the Philippines’ premier tax advisory and funding consulting agency. A graduate of Harvard with govt schooling at Oxford and superior tax coverage research at Duke. He is called “The Philippine Tax Whiz” and a number one advocate of real tax reform, advising multinational companies, overseas traders, and policymakers.