For decades, the Philippines has struggled to build a fair and balanced tax system. Micro, small, and medium enterprises (MSMEs) account for over 99% of businesses and contribute approximately 63% of total employment. However, their share of tax revenues remains disproportionately low at less than 20%, underscoring challenges in compliance and collection efficiency. Meanwhile, multinational corporations (MNCs) leverage global tax frameworks to optimize tax obligations, frequently engaging in profit shifting—allocating profits to tax havens or low-tax jurisdictions. This practice creates an uneven playing field, disadvantageous to MSMEs and weakening the country’s overall tax structure.
The erosion of the tax base has direct implications for essential public services, including infrastructure, education, and healthcare. Disparities in the tax system lead developing countries like the Philippines to miss out on critical revenue needed for sustainable development. Embracing and implementing the OECD’s Global Minimum Tax (GMT) is a vital step toward a more equitable tax landscape, ensuring MNCs contribute fairly while providing greater support and opportunities for MSMEs to thrive.
OECD Global Minimum Tax and Its Initiatives
The OECD’s Global Minimum Tax (GMT) framework establishes a 15% effective minimum tax rate for multinational corporations (MNCs) with global annual revenues of at least €750 million (approximately PHP 45 billion). This initiative seeks to curb profit shifting by reducing the incentive for MNCs to exploit tax loopholes and jurisdictions with low or zero tax rates, thereby fostering fairer competition across countries. The GMT marks a significant step toward ending the “race to the bottom” where nations offer excessive tax incentives to attract foreign direct investments (FDIs), often at the expense of essential public revenues.
If legislated and properly enforced, adopting the GMT in the Philippines could significantly boost revenue collection by ensuring that MNCs pay their fair share of taxes. This would help level the playing field for MSMEs, which often struggle against the competitive advantages enjoyed by large corporations using tax avoidance strategies. Beyond enhancing revenue, the GMT will support economic stability by reducing dependency on tax incentives. Instead, the government can focus on enhancing ease of doing business, improving transparency and governance, and investing in infrastructure and workforce development to attract sustainable, long-term investments while maintaining global competitiveness.
Implementation of GMT in the Philippines
Recognizing the urgency of tax reform, I recently facilitated a high-level discussion between the Organisation for Economic Co-operation and Development (OECD) and the Philippine Senate to explore the adoption of the Global Minimum Tax (GMT). John Peterson, Head of Division for Cross Border and International Taxation (CBI) at the OECD, provided critical insights into how GMT could reshape international taxation to promote fairness and competitiveness. My collaboration with Peterson began during my time at Harvard, and I later featured him on my podcast, Thought Leaders and Game Changers. He also served as a distinguished speaker at the 2024 International Tax and Investment Conference (ITIC), organized by the Asian Consulting Group, where he emphasized the importance of GMT for developing economies, particularly the Philippines.
Countries such as Singapore, Thailand, and Malaysia are preparing to implement GMT by January 2025 to safeguard their fiscal revenues and strengthen their competitiveness. Meanwhile, the Philippines risks falling behind without a clear implementation plan. Peterson stressed that GMT adoption would generate much-needed revenue for critical sectors such as healthcare, education, and infrastructure, fostering sustainable growth. Delaying its implementation will exacerbate tax inequalities and limit the government’s ability to invest in these key areas. Senator Win Gatchalian, Chair of the Senate Ways and Means Committee, reiterated the Senate’s commitment to enacting legislative reforms that align the Philippines with global tax standards while enhancing regional competitiveness.
A Call for Legislative Urgency
The Philippine government must prioritize passing legislation to adopt the OECD’s GMT framework. Key considerations, among others, include: establishing clear mechanisms for MNCs to address compliance and ensure effective collection; aligning policies with global standards to maintain competitiveness and attract foreign direct investments (FDIs); and, lastly, strengthening enforcement by investing in technology and resources to monitor MNC compliance.
Accompanying the GMT with reforms aimed at improving the ease of doing business is just as important. By reducing bureaucratic processes, addressing corruption, and enhancing regulatory frameworks, the Philippines can position itself as an attractive investment destination without depending on excessive tax incentives.
The adoption of the OECD Global Minimum Tax presents a transformative opportunity for the Philippines. By relieving MSMEs of an undue tax burden and ensuring that multinational corporations pay their fair share, the country can enhance revenue collection, foster a more equitable business environment, and focus on sustainable economic development. Now is the time for decisive legislative action to propel the country forward, ensuring a brighter and more equitable future for all Filipinos.
