Taxation in Financial Services under TRAIN

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This Policy Note analyzes the taxes imposed by the Tax Reform for Acceleration and Inclusion (TRAIN) Act and their impact on the liberalization thrusts of the Philippine government for the various sectors of the country, particularly the financial services sector. Among the subsectors included in this study are banking, insurance, and stock market. The study found that the change in the rates of taxes on financial transactions has increased the friction costs, or the value of the total transaction prices, which now inhibit the smooth flow of trade and investment. In the banking sector alone, taxes have gone up by as much as 100 percent. Meanwhile, increased taxes in the equities market have contributed to the decline in the volume of trade. Given these unintended consequences of TRAIN taxes, the study urges the government to revisit the imposition of taxes on the financial services sector. It argues that while taxes are meant to raise funds for the government, they may discourage investors and businesses, who may turn to other Philippine neighboring countries resulting in revenue losses.