Fiscal reform biggest legacy of Duterte gov’t — FMIC exec

The Duterte administration may be associated with an ambitious infrastructure program, but for an executive of one of the country’s largest investment institutions, its biggest legacy would be giving the economy a jolt through the overhaul of the tax system.

Cristina Ulang, vice president of First Metro Investment Corp. (FMIC), the investment banking arm of the Metrobank Group, said the second package of the Comprehensive Tax Reform Program (CTRP), which calls for the lowering of corporate income taxes and rationalization of fiscal incentives, would support the sustainability of the country’s growth momentum by enabling firms to reinvest more of their capital for expansion and improvement of their operations.

The second package of the tax reform agenda has been subjected to committee hearings at the House of Representatives since May.

“I think the biggest legacy of President Duterte here in the Philippines would be his fiscal stimulus. And when I say fiscal stimulus, it’s not just spend, spend, spend and Build Build Build but about updating the income tax structure in the country,” she said during the firm’s mid-year economic and capital markets briefing Monday.

Lowering corporate income taxes, she said, would be a boon to the equities market which has been in a slump due to a confluence of factors that include rising oil prices, successive US Fed rate hikes, global trade war, depreciating peso, accelerating inflation and geopolitical concerns.

As interest rates are beginning to rise, making the cost of borrowing funds higher, firms would be able to reinvest more of their own earnings into growing or improving their operations.

“And another, which makes me excited about prospects in the stock market is the reduction in corporate income tax. That’s going to be very supportive of our growth and reinvestment of capital by key corporations in the country. Now that interest rates are beginning to rise, the cost of money is higher. So if the tax structure lowers the rate, then it favors reinvestment and helps the economy sustain its growth,” Ulang said.

FMIC expects the slump in the equities market to reverse within the year as corporate earnings are seen to receive a boost on account of higher consumer spending leading to the 2019 senatorial elections. The continued strength of the economy, as well as a fiscal policy that is supportive of growth, is seen to contribute to the recovery as well.

From a peak of 9,058 in January 2018, the Philippine Stock Exchange index dropped 22.9 percent in June to 6,986.

FMIC, however, expects the PSEi to rally at the end of the year to 7,900 to 8,200.