The proposed Comprehensive Tax Reform Program of the government should help push and sustain local output growth, measured as the GDP, above 6 percent for many years, so long as political infighting does not succeed in paring down the full-potential impact of the tax package, the research unit of the global credit-rating firm Fitch Group said.
This pertains to the ongoing effort to legislate an expansive revenue-raising measure seeking to put more money into people’s pockets but, at the same time, shift the burden of taxation more to the big corporations and rich individuals.
On Thursday BMI Research, the think tank subsidiary of Fitch Group, said the latest assessment on the first of four proposed tax-reform packages should prove positive for revenue growth and allow the government to pursue an ambitious infrastructure buildup and developmental spending program without risking macroeconomic stability.
The Fitch Group unit believes the $292-billion economy of the Philippines should continue to grow in excess of 6 percent over the medium horizon as the tax measures begin to bite and implemented with vigor.
“The tax-reform package is one of the key features of President Duterte’s 10-point socioeconomic agenda…. In our view, the income-tax reforms will not only simplify the income-tax system for most taxpayers [thus reducing the cost of compliance, but also help to shift the tax burden from the poor to the rich, which will support more inclusive growth,” BMI said of the Philippines in a research note.
In February the Department of Finance (DOF) endorsed the first of the tax-reform measures aiming to lower the personal income-tax rates and boost revenues by increasing the excise tax on automobiles and fuel, as well as expand the value-added tax base.
Scaling back the personal income-tax rate effectively frees a significant portion of the income Filipinos would otherwise set aside as tax and use them, instead, for consumption activities.
BMI also said the tax-reform package corresponds with the economic-development program laid out in the development plan for the entire six-year stretch of the Duterte administration.
“We believe that the government’s medium-term plan to boost infrastructure and developmental spending, combined with offsetting measures to improve revenue and reduce current expenditure, bodes well for fiscal sustainability and real GDP growth,” BMI said.
“Furthermore, we highlight that improvements that had been made to the public procurement process under the Aquino administration will continue to enhance the efficiency of government capital spending and limit wastage of public resources,” it added.
Not all roses
While BMI is unabashedly optimistic on the near- and medium-term growth outlook of the Philippines, the think tank warned of heightened political risk as a downside to that optimism.
“We note that risks to the Philippines’s fiscal outlook are weighted to the downside as the passage of the tax-reform bill could face further delays due to political infighting,” BMI said.
“According to congressional rules, these tax measures are required to go through the House of Representatives, followed by the Senate, before passing into law. Given recent episodes surrounding the arrest of Sen. Leila M. de Lima of the Liberal Party (LP) and the dismissal of four other LP and affiliated senators from their committee chairmanships, legislators from the Senate minority could hold the bill hostage in order to force the government into a consensus,” the think tank said.