Gov’t’s low revenue base a ratings constraint — Fitch

Low government revenue base remains a constraint on the Philippines’ fiscal profile, one of the three major international credit rating agencies said yesterday, highlighting the need to pass the Duterte administration’s tax reform proposal.

Based on its third-quarter Asia Pacific Sovereign Overview, debtwatcher Fitch Ratings noted that the government’s narrow revenue base as one of the constraints on the nation’s higher credit rating status.

Aside from revenue base, Fitch also said that other constraints to the country’s credit rating include its low levels of income and human development as well as weak governance standards.

Fitch kept the Philippines’ present investment grade “BBB-” credit rating and the positive outlook.

“[It] is supported by continued strong macroeconomic performance, a net external creditor position and government debt levels that are below the ‘BBB’ median,” Fitch said.

The rating agency, meanwhile, noted the passage of the first comprehensive tax-reform package in the House of Representatives in early June.

“The reforms aim to lower personal and corporate tax rates while expanding the tax base, resulting in a net-positive gain to government revenue,” Fitch said.

The Department of Finance (DOF) earlier estimated that the full-set or the five tax-reform packages will boost revenue of the government by 2.0 percent of gross domestic product (GDP) by 2019.

On Tuesday, Finance Secretary Carlos G. Dominguez III said that personal income taxes may go down before the end of the year as long as Congress swiftly passes the Duterte administration's tax reform bill.

Dominguez explained that if the tax reform bill hurdles the Senate at the onset of its second regular session, taxpayers may see a reduction in their withholding taxes in the third or fourth quarter of the year.

"With the President's certification of the TRAIN [Tax Reform for Acceleration and Inclusion] bill as an urgent and a priority measure, complemented by the personal appeal he made before our lawmakers in his SONA [State-ofthe-Nation Address], we are hopeful that the Senate will pass the measure soon enough," Dominguez said.

President Rodrigo R. Duterte renewed his call for the Congress to approve the tax reform measure in full during his State-of-the-Nation Address on Monday.

Senators, however, said they cannot commit to passing the tax reform bill in its entirety as the President requested, as they still need to study it further.

Some business analysts, meanwhile, expect the bill to get watered down at the Senate.