MBC Proposes Deferment of Proposed
Makati Tax Hikes

22 September 2005 -- The Makati Business Club calls on Makati City local government officials to reconsider the implementation of its proposed increases in local taxes and to defer any moves to beyond 2006. The MBC further proposes that any proposal for a tax hike should be presented concurrently with major projects to improve city services in Makati, particularly for the city’s lower-income neighborhoods.

While we commend the city government for planning the construction of new school buildings in Baranggays Guadalupe Viejo, Comembo, and Bangkal, as well as additional baranggay halls, street and bridge lighting, and enhanced emergency response systems, we feel that such expenditures can be covered under the current budget structure without having to resort to new taxes.

As far as city finances are concerned, we note that Makati’s financial position is healthy. For the past three years, the city government has been posting budget surpluses of P1.64 billion in 2002, P1.96 billion in 2003, and P2.58 billion in 2004. Makati ranks second in Metro Manila in terms of gross income and first in terms of budget surpluses. We feel that the city government can tap into these surpluses to fund new projects.

As the country’s leading financial and business center, Makati is already blessed with windfall tax collections arising from the sheer volume of business being booked here by all industry sectors. On top of that, soaring commercial and residential property values also contribute to the city’s revenues. We note that business taxes and real property taxes contributed about 40% each to city income in the last quarter of 2004.

The Makati City Government should not discount the additional burden that higher city taxes will have on businesses. The anticipated implementation of the EVAT law will already increase VAT coverage for all businesses as well as subject them to a new corporate income tax rate of 35%, up from the current 32%. Creditable VAT input taxes will also be limited to only 70% of VAT paid to suppliers, creating yet another burden on all businesses. Coupled with increased costs of doing business, companies will be faced with more difficult times ahead. We anticipate that businesses may have to face salary and benefits adjustments for their employees as prices escalate. As it is, a recent World Bank study has revealed that business enterprises in the Philippines are already burdened with the highest combined tax rates in Asia. For these reasons, we feel that the tax hike should be deferred and carefully studied.

Makati City stands to benefit from the continued confidence of the business community. One major factor that accounts for such confidence is the perception that the city is sensitive to the needs and sentiments of the business community.