By Melissa Luz T. Lopez
Senior Reporter
PROLONGED UNCERTAINTY over tax reform could weigh on investor appetite towards the Philippines, S&P Global Ratings said on Thursday in the wake of reports that lawmakers could be hesitant to approve measures involved as the May 2019 midterm elections draw closer.
Andrew Wood, director for S&P’s sovereign and international public finance ratings, said approval of the second tax reform package will have a greater impact on the business climate than the country’s fiscal outlook.
“With regard to investor sentiment, it becomes more of a timing issue. For the time being, we have heard anecdotally that investors are taking a wait-and-see approach to the Philippines because they want to see how this package is negotiated and how it turns out,” Mr. Wood said in a webcast yesterday.
“What we may see is if this package is drawn out a bit more in negotiations for a significantly longer time than expected, that could weigh on investor sentiment towards the Philippines over the remainder of this year until it is settled in the future.”
The second package seeks to cut corporate income tax rates gradually to as low as 20% from 30% currently in order to put them at par with levels among the Philippines’ close Asian competitors for investments, as well as remove tax incentives given by 14 investment promotion agencies that are deemed redundant and which the Finance department estimates had cost the government some P300 billion in 2015.
This comes on the heels of the first package of the Tax Reform for Acceleration and Inclusion that reduced personal tax rates but added or imposed new taxes on several items like fuel, cars, sugar-sweetened drinks and cosmetic surgery, among others.
President Rodrigo R. Duterte on Monday egged lawmakers on to approve all the remaining tax reform measures this year in order to beat the election fever.
However, Senate leaders have remained lukewarm to the second package now pending in Congress, saying no one was willing to sponsor the measure. The Finance department hopes to submit the remaining two to three more packages by the end of this month.
Pending approval of the reform, Mr. Wood said planned investments in the Philippines may be left hanging as investors await concrete progress.
The International Monetary Fund has also backed the measure, saying that the Philippines does not need to resort to tax holidays just to attract private investments.
S&P in April revised its credit outlook for the Philippines to “positive” from “stable,” hinting at stronger chances of bagging a rating upgrade from the current “BBB” level, which is a notch above the minimum investment grade status.
The debt watcher has said the “positive” tag takes stock of the “more proactive” policy environment in the Philippines, which Mr. Wood said increases the chances that strong growth will continue without eroding state finances.
S&P remains upbeat about Philippine growth prospects over the medium term. The credit rater projects another 6.7% growth this year to match 2017’s pace, among the fastest in Asia although short of the government’s 7-8% target.
“There’s a lot to like about this economy,” Mr. Wood said, citing strong consumer spending, increased manufacturing and exports, as well as a robust infrastructure drive.
“In terms of expenditures, we do expect the government to continue to spend more on infrastructure projects domestically. This will feed into stronger investments growth, and in the future we expect that to also support productivity growth in the economy.”
Kim Eng Tan, senior director at S&P, said the trade war between the United States and China is unlikely to derail economic growth for now.

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