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

2026-03-20 - 03:10

An open letter to President Ferdinand Marcos Jr. Mr. President: The Philippines stands at a defining moment in its economic history. As of March 2026, the World Bank says the Philippines has moved closer to upper-middle-income status, with GNI per capita at $4,470. This improvement reflects decades of progress and the resilience of the Filipino people. Yet numbers alone do not guarantee shared prosperity. Corruption that weakens institutions, discourages investment, and erodes public trust threatens to leave millions behind. The time is now to enforce meaningful tax reform, confront corruption head-on, and ensure every Filipino reaps the benefits of this hard-earned growth. This is why I write to you again — my third open letter — not as a political critic, but as a reform advocate who believes your administration has a historic opportunity to confront the largest hidden tax imposed on the Filipino people: CORRUPTION. Recognizing the reforms your administration has begun Allow me first to express my gratitude. In my previous letters, I raised concerns and recommendations aimed at protecting Filipino taxpayers and improving the country’s investment climate. Your administration listened — and more importantly, acted. You moved to suspend unnecessary BIR audit, protecting compliant businesses from disruptive and costly investigations. You supported the transition toward data-driven, risk-based tax enforcement, allowing authorities to focus on serious tax evasion. You certified the abolition of the travel tax as priority legislation, removing an outdated burden and strengthening the competitiveness of the tourism sector. These reforms may seem technical, but they send a clear signal to investors and the international community: your administration is prepared to modernize policy and listen to reform advocates. For that, Mr. President, I sincerely thank you. Must Read [Ask the Tax Whiz] An open letter to President Marcos: Filipinos feel overtaxed, yet underserved Corruption: The largest economic leak Despite strong economic fundamentals, corruption remains one of the most significant barriers to inclusive growth. The IMF estimates that corruption can reduce government revenues by as much as 4% of GDP. The OECD warns that it undermines tax collection, distorts markets, and discourages investment. Transparency International confirms that countries with stronger transparency and governance attract far higher foreign investment. In the 2025 Corruption Perceptions Index, the Philippines scored 32/100, ranking 120th out of 182 countries, far below the global average of 42 and trailing ASEAN leaders such as Singapore (84), Vietnam (81), and Timor‐Leste (73). Ahead of only a few neighbors like Cambodia and Myanmar, this ranking is a stark reminder that without decisive action, corruption continues to weaken institutions, discourage investment, and erode public trust. Corruption functions like a hidden parallel tax: it raises business costs, diverts public funds intended for infrastructure and social services, and discourages both domestic and foreign investment. For government, it results in lost revenues from smuggling, tax evasion, procurement irregularities, and inefficiencies in institutions such as the BIR and Bureau of Customs. When revenues are lost, governments often borrow more or increase taxes — frequently on compliant taxpayers. Modernizing the Philippines’ investment strategy To become a premier investment destination in Asia, the Philippines must strengthen the institutions that attract global capital. PEZA has been a cornerstone of export-oriented growth for nearly three decades: Nearly 13% of national GDP More than 50% of export goods Roughly one-third of service exports These zones host thousands of multinational companies, generate employment, and integrate the Philippines into global supply chains. But with supply chains shifting, digital industries expanding, and climate-resilient infrastructure becoming essential, the Philippines must modernize the legal framework governing economic zones. Proposed amendments to the Philippine Economic Zone Authority (PEZA) Law are timely and strategic, positioning the country to attract higher-value investments and innovation-driven industries. Structural tax reforms to strengthen the economy Beyond investment policy, the Philippines needs deeper structural reforms to unlock growth, equity, and good governance: Fight corruption decisively: Lift bank secrecy laws and launch a nationwide audit and investigation targeting corrupt politicians, their family businesses, campaign donors, and government contractors who have amassed ill-gotten wealth. Mandate the Bureau of Internal Revenue (BIR) to file tax evasion cases, ensuring that unexplained wealth—a prima facie evidence of tax evasion—perpetually disqualifies these individuals from holding public office. Simplify and modernize taxation: Reduce the VAT rate from 12% to 10%, rationalize exemptions, and provide targeted support to senior citizens and PWDs. Allow all Filipinos to earn their first ₱1 million tax-free. Offer SEPs and MSMEs a 10% flat tax option in lieu of income tax and VAT, supported by simplified digital accounting. Fully implement electronic invoicing as mandated under the TRAIN law. Digitize and optimize tax enforcement: Transition to a fully data-driven, risk-based tax enforcement system using AI and blockchain, prioritizing large-scale tax evaders, smugglers, and illicit financial networks. Establish a National Revenue Authority, integrating tax and customs administration through modern digital systems. Integrate the National ID with taxpayer identification, ensuring fair taxation and more precise delivery of social support to vulnerable citizens. I also urge economic managers and Congress to support bold reforms — including PEZA modernization — to strengthen investment institutions, simplify the tax system, and ensure enforcement applies equally to all. View this post on Instagram A post shared by Mon Abrea (@askthetaxwhiz) Restoring public trust in government Economic reform must be accompanied by institutional reform. The Philippines must confront political dynasties and entrenched corruption. Public office must never shield those accused of corruption; those who steal from the Filipino people must face justice. Restoring trust requires applying the law equally to all, including powerful political actors and their business interests. A defining moment for your Presidency Mr. President, the Philippines is close to reaching upper-middle-income status. Whether this milestone translates into real, inclusive prosperity depends on the integrity of our institutions and the courage of our reforms. The window for transformative change is still open, and based on your administration’s response to my previous letters, I believe you have both the opportunity and responsibility to seize it. In the end, the true measure of progress is not only the statistics we celebrate — but the institutions we build and the opportunities we create for every Filipino. If corruption is the largest hidden tax on Filipinos, then fighting corruption decisively may be the most powerful tax reform your administration can deliver to ensure that the Philippines’ status benefits all citizens. Respectfully, Mon Abrea, CPA, MBA, MPA Global Tax Policy Expert and Chief Tax Advisor, Asian Consulting Group (ACG) Harvard | Oxford | Duke Mon Abrea is a Global Tax Policy Expert and Chief Tax Advisor of the Asian Consulting Group (ACG), the Philippines’ premier tax advisory and investment consulting firm. A graduate of Harvard with executive education at Oxford and advanced tax policy studies at Duke. He is known as “The Philippine Tax Whiz” and a leading advocate of genuine tax reform, advising multinational corporations, foreign investors, and policymakers. Must Read Ask Me Anything with Mon Abrea on BIR’s LOAs