RP's central bank warns of capital flight if bank secrecy lifted
RP's central bank warns of capital flight if bank secrecy lifted
MANILA (AFP): The governor of the Philippines Central Bank warned yesterday of large capital flight and a further weakening of the peso if Congress pushes through with plans to scrap the bank secrecy law and tax foreign currency deposits.
Law enforcement officials have proposed Congress pass a law allowing authorities to pry into the bank accounts of suspected criminals, such as drug dealers, in order to help in their prosecution.
A tax on foreign currency deposits is among the provisions of a proposed comprehensive tax reform law awaiting the approval of both chambers of congress.
"A lifting of the absolute confidentiality rule ... will have a destabilizing effect on the banking system and the economy as a whole," Central Bank governor Gabriel Singson said in a paper prepared for the senate.
He said the lifting of "such cloak of secrecy would abet capital flight."
Taxing foreign currency deposits would increase intermediation costs, hurt exporters who source their dollars from these deposits and force depositors to transfer funds to countries like Hong Kong and Singapore where they are tax-free, Singson said.
"Imposing tax on foreign funds amid the currently turbulent investment environment could discourage, if not altogether, drive out portfolio investors," he said in the paper released to reporters.
This would put added pressure on the beleaguered Philippine currency, the peso, which has fallen sharply since monetary officials allowed it to trade by a wider band on July 11 following speculative attacks on Asian currencies.
The Philippine peso closed at 28.51 to the U.S. dollar on Friday, down eight percent from its level before July 11.
Justice Secretary Teofisto Guingona has said that Manila's drive against the nine-billion-dollar-a-year illicit drug business in the country was being hampered by the lack of an anti-racketeering law.
Such a law would allow the government to look into the bank accounts of suspected drug lords and confiscate their legal assets acquired through the proceeds of illegal businesses.
Singson said he favored "limited cases" in which the Bureau of Internal Revenue can look into bank accounts, such as the case of a tax payer who waives his privilege in writing.