By Butch Fernandez & Bianca Cuaresma
Sovereign ratings firm Moody’s Investors Service hinted broadly of another credit upgrade for the Philippines should the houses of Congress finally enact a plate full of reforms significantly ramping up the country’s ability to generate revenues.
Moody’s Vice President and Senior Credit Officer Christian de Guzman said the passage of the Comprehensive Tax Reform Program (CTRP) last Wednesday at the House of Representatives was seen as credit positive for the Philippines, since this directly addresses the country’s weak revenue output at the moment.
But Moody’s buoyant mood was apparently not shared by senators, some of whose members on Monday cited potentially far less revenue intake for the Malacañang-endorsed
Tax Reform for Acceleration and Inclusion (TRAIN) bill of only some P130 billion versus the P162.5 billion crafted by their House colleagues.
That puts a damper on the sovereign’s ability to convince the New York-based ratings firm to move at least a notch higher the country’s “Baa2” credit classification at the moment.
Moody’s had said the Philippines still collects significantly less revenue than similarly rated peers, such revenues equal only 15.2 percent of local output, or the GDP, in 2016, or only slightly higher than Indonesia’s 12.5 percent of GDP and Colombia’s 14.9 percent of GDP.
Revenue collection among “Baa”-rated developing countries as the Philippines equal 22.9 percent of GDP. De Guzman said the TRAIN bill should boost collection and improve such metrics as interest payments as a share of revenue.
The government earlier estimated the TRAIN bill will generate an additional P162.5 billion, or 1 percent of GDP, over 12 months as the lower tax for fixed-income earners will be more than offset by incremental excise tax on items as automobiles, fuel and sugar-sweetened beverages.
But Moody’s also said the lower house may have diluted the potential incremental receipts by some P82 billion, or 0.5 percent of GDP. Earlier, analysts at Credit Suisse said any further dilution in the Senate would have negative implications to the economy.
“Official estimates of the tax reform’s revenue effect are still forthcoming, but we expect that the debt affordability ratio will fall to less than 13 percent by 2018 from 24.4 percent in 2010 should the bill pass into law later this year,” de Guzman said.
Aside from economic gains, de Guzman also said the TRAIN bill should help boost the government’s ability to pursue economic reforms and away from the aggressive war on crime and drugs.
“Since last year, Duterte’s administration has been mired in various controversies related to his focus on security and the war on drugs. As a result, strained relations with some factions in both houses of Congress threatened to detract attention away from the reform agenda, particularly those related to economic and fiscal matters,” de Guzman said.
“Nevertheless, Duterte has maintained high approval ratings among the electorate, as well as a coalition comprising a strong majority in the House of Representatives and has leveraged his political capital to push the TRAIN bill through the legislature,” he added.
‘In-depth scrutiny’
Sen. Juan Edgardo M. Angara, chairman of the Ways and Means Committee, indicated on Monday the money measure earlier passed by the House of Representatives will still have to undergo further review before its submission for plenary deliberations.
“We will be having hearings during the recess and going in-depth on each aspect—oil, sugar, automobile, value-added tax and income, among others,” Angara told the BusinessMirror.
Angara added the senators need to conduct a series of public hearings on the complex tax proposal before writing a committee report endorsing the Senate version of the bill, indicating the panel is not likely submit one when Congress reconvenes on July 24.
“We are targeting September to come out with a committee report,” the senator said on the Malacañang-certified tax measure for plenary consideration.
This developed as Sen. Sherwin T. Gatchalian, who chairs the Senate Committee on Economic Affairs, voiced concerns over the potential backlash of upward tax adjustments under the Executive’s tax proposal endorsed for congressional approval.
“The excise tax on fuel could trigger spike in basic commodities,” Gatchalian said in a separate interview with the BusinessMirror.
Even as the oil tax adjustment is seen to drive up prices of basic goods, the senator suggested the government must make sure it takes other steps to mitigate its impact.
Gatchalian said finance officials should also review proposed adjustments in personal income-tax rates affecting 9 million individual taxpayers.
“The Comprehensive Tax-Reform Program needs to be studied carefully,” he added.