Senate tax reform bill friendly to spending — Credit Suisse

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By Melissa Luz T. Lopez,
Senior Reporter

THE SENATE’S version of the tax reform plan is likely to have a smaller impact on commodity prices, an analyst with a global bank said, and will help drive stronger household spending by giving Filipinos more take-home pay.

Economist Michael Wan of Credit Suisse said that the inflation impact of the tax reform package approved by the Senate is expected be tame next year, although the additional revenue generated will be  lower.

Voting 17-1, the Senate passed on third reading its version of the first tax reform package on Tuesday night, six months after the House of Representatives approved its own version of the bill.

Senate Bill 1592 is expected to generate around P130 billion in fresh revenue during its first year of implementation, which is slightly lower than the P133.8 billion expected from House Bill 5636 and the P157.2 billion under the original proposal of the Department of Finance.

“Our previous analysis of the House Bill shows that inflation should rise by around 0.9%-1.2% in 2018 due to the tax changes. Addition to CPI (Consumer price Index) will likely be lower in the Senate version for a few reasons,” Mr. Wan said in a Nov. 28 report.

For one, the adjustments to the excise tax on petroleum products will start small, with the heavier levies imposed during the latter years. Mr. Wan also pointed out that the tax on sugary drinks will be lower at P4.50 per liter, compared with the P10/liter prescribed under the House version.

The Bangko Sentral ng Pilipinas expects 2018 inflation to average 3.4% in 2018 as the new duties kick in, slightly higher than the 3.2% forecast this year but still within the two to 4% target band.

The Senate bill also provides for targeted implementation of new taxes for documentary stamps, mining, and cosmetic procedures, against a “broad-based” approach in its counterpart bill approved by the House. Exemptions to value-added tax, particularly on mass housing and low-cost rentals, have also been retained.

“A corollary is that the Senate bill is slightly more supportive of private consumption, with personal income tax cuts front-loaded in one tranche in the Senate bill compared with two tranches in the House version,” Mr. Wan added.

Members of the Senate and the House will sit in bicameral committee to reconcile their versions of the tax program, before it can be sent to President Rodrigo R. Duterte for signing into law.

Credit Suisse said it expects discussions on the mining tax, documentary stamp rates on bank checks and shares of stock, and stocks to be the sticking points during the last stretch of Congressional meetings.

The DoF is targeting the bill for signing Dec. 15, which would allow the new tax scheme to take effect by Jan. 1.