TRAIN key to future rating upgrade
THE PASSAGE of succeeding tax reform measures would help the Philippines secure further rating upgrades, an analyst at Fitch Ratings said, with additional revenues seen to bolster the country’s fiscal position and keep it a “star performer” in Asia.
Stephen Schwartz, head of sovereign ratings for Asia Pacific, said Fitch has high hopes for the Philippines given the comprehensive tax reform program being pushed by the Duterte administration, saying it inspired the latest upgrade and may trigger subsequent rating actions in the coming years.
“To the extent that revenue performance is strong, that is a positive rating driver. When we next update the rating outlook, we will certainly look at the latest trends in revenue performance and also the outlook for the remaining reform packages in the tax area,” Mr. Schwartz said in a recent interview in Manila.
Fitch in December upgraded the Philippines to a “BBB” rating with a “stable” outlook — one notch above minimum investment grade status — shortly after the passage of the Tax Reform for Acceleration and Inclusion Act (TRAIN) in Congress.
Prospects remain bright for the Philippines as far as Fitch is concerned, as Mr. Schwartz anticipates additional tax packages to clear the legislative mill.
“Going forward, we understand that remaining tax measures are likely to be revenue-neutral but will be more effi-
cient and growth-oriented. So that should be, over time, a positive rating driver if the packages are passed on time and implemented efficiently,” the Fitch analyst said.
The TRAIN is seen to raise the share of government revenues by 0.5-1% of gross domestic product (GDP) annually over the next five years, which in turn will support the ambitious infrastructure program of the Duterte administration.
The entire tax reform program — which is expected to run up to five packages — is supposed to yield about P2 trillion in additional revenues, which will help finance the government’s planned P8.44- trillion infrastructure program until 2022.
The succeeding proposals look to trim corporate income taxes to 25% from 30% while streamlining tax perks granted to companies. Lower estate and donor’s taxes will be compensated by higher property valuation rates to raise more funds for local government units.
A set of additional luxury taxes — which entail higher duties on fancy cars and jewelry, duties on fatty food, and income taxes on lotto and casino winnings — may also be considered should there be a need to augment tax collections.
On infrastructure, Fitch also recognized a solid start to the government’s flagship “Build, Build, Build” program.
“It’s not always easy to implement projects... but our assessment is that the Philippines in relative terms has been doing a pretty good job at implementing its ambitious spending targets,” Mr. Schwartz added. “We are optimistic right now that the government will achieve success, but we’ll be monitoring over time.”
Fitch expects the Philippine economy to grow by 6.8% this year, faster than 2017’s 6.7% although short of the state’s 7- 8% goal. Philippine GDP expanded by 6.8% during the first quarter.
The massive infrastructure spending agenda is seen to propel economic growth to average 7-8% by 2022, while addressing connectivity and logistics woes in order to improve the ease of doing business in the Philippines.