TRABAHO impact on deficit negligible — Fitch Solutions

The second package of the Comprehensive Tax Reform Program (CTRP) as approved by the House of Representatives will have negligible impact on the country’s fiscal position, Fitch Solutions Macro Research said.

In a report, Fitch Solutions said House Bill 8083 or the Tax Reform For Attracting Better and High-Quality Opportunities (TRABAHO) would not cause a significant reduction in the government’s revenues, and therefore have little impact on the country’s fiscal deficit.

“We expect the bill to have negligible impact on revenue collection in the near-term, while the longer-term reduction will likely be offset by the rationalization of tax incentives and other revenue enhancing measures contained in subsequent packages of the Comprehensive Tax Reform Program,” Fitch Solutions said.

“We are therefore maintaining our forecast for the Philippines’ budget deficit as a share of GDP to come in at 2.9 percent in 2018 and average 2.6 percent from 2019 to 2027,” it said.

The House of Representatives last Sept. 10 passed House Bill 8083 or the TRABAHO bill on the third and final reading.

The bill seeks to reduce the current 30 percent corporate income tax (CIT) rate by two percentage points every two years starting 2021 until it reaches 20 percent in 2029. It also aims to rationalize the country’s fiscal incentives system.

The DOF earlier said the measure is expected to result in a revenue loss of P62 billion in the first year of its implementation.

According to Fitch Solutions, the proposed adjustment in the corporate income tax rate under the bill will have a limited impact on the government’s finances as the reduction is very gradual.

“In terms of the CIT rate, the reduction will not kick in until 2021. After which, the reduction will be at an average of one percent per year over the next eight years, suggesting a very gradual path,” Fitch Solutions said.

The Fitch unit also said the P62 billion expected loss in revenue upon the bill’s implementation is only minimal, as it represents only 1.5 percent of the projected revenue that year.

Furthermore, Fitch Solutions said the bill’s provisions on the rationalization of tax incentives, as well as other packages under the CTRP, will help offset the losses caused by the lowering of CIT.

However, Fitch Solutions said it believes the reduction in CIT rates, while one of the considerations of potential investors, will not be enough to boost investments in the country.