Tax reform to upgrade Phl credit rating – Diokno

The Philippines could potentially enjoy a credit rating upgrade should the government implement its tax reform program, Budget Secretary Benjamin Diokno said yesterday.

Diokno said the approval of the substitute tax reform bill in the Congress, despite the watered down provisions, would put the Philippines in a good fiscal position, and increase its chances for a credit rating upgrade.

“I think that (tax reform) will actually strengthen our position. If we pass that, we might even get an upgrade (in credit ratings). I’m optimistic that we might get an upgrade,” Diokno told reporters on the sidelines of the Luzon leg of the Open Government Dialogues in Pasay City.

Currently, the Philippines enjoys an investment grade status from credit rating agencies Stand- ard & Poor’s, Moody’s and Fitch Ratings.

A rating upgrade could lead to lower interest rates and more investments for the Philippines.

Diokno said the expected revenues to be generated through the tax reform measures would be incorporated in the national budget for fiscal year 2018.

“It will already be included in the 2018 (budget), because it might get approved in the House of Representatives before end of May,” Diokno said.

According to the latest estimates of the Department of Finance (DOF), the substitute tax reform currently being deliberated in the House of Representatives could yield P82.3 billion in additional revenues for the government.

This is lower by almost half than the P157.2 billion in projected revenue in the original proposal of the DOF, augmented by proceeds from complementary measures.

Despite the lower than expected revenues, Diokno assured the government would be able to manage its fiscal deficit at around three percent of the GDP.

“It’s not strictly three percent, it could be 3.2 percent next year, then 2.8 percent the following year, as long as it’s steady at around three percent,” Diokno said.

Sought for comment, Emilio Neri, chief economist at the Bank of the Philippine Islands said a credit rating upgrade as a result of tax reform is a possibility, but “not a guarantee.”

“There are issues about the timing of implementation, how watered down it will be, and on whether it will be enough to fund the government’s plan to spend,” Neri said in a text message.

“I’m not sure how the rating agencies perceive a shift from ODA funding vs provate and market led funding of PPPs,” he said.