THE EXECUTIVE is aiming for the country to bag another credit rating upgrade within two years by enacting remaining tax reforms, the Finance chief said on Monday, but the Senate president said he could commit approval of only the corporate tax component of that program within that period.
“We want to do it in two years,” Finance Secretary Carlos G. Dominguez III told reporters in Manila, referring to the government’s aim to achieve “A” credit rating, boosted by enactment of remaining reforms designed to shift the tax burden to those who can afford it while increasing revenue sources.
S&P Global Ratings on Thursday last week upgraded the Philippines’ credit score to “BBB+” from “BBB” — the country’s highest debt rating so far that is a step shy of “A” investment grade — citing above-average growth and strong external and fiscal position that have boosted the country’s economic profile. S&P assigned a “stable” outlook to the rating which means it expects to maintain that grade in the next six months to two years as the economy is likely to remain strong over the medium term.
In a webcast on Friday, S&P Director for Sovereign and Internal Public Finance Ratings Andrew Wood said that the credit rater is now watching for progress in remaining tax reforms, including one that will gradually cut the 30% corporate income tax rate to 20% by 2029 in a bid to attract more foreign direct investments.
It took more than a year — and intervention by President Rodrigo R. Duterte himself to prod lawmakers — for the first tax reform package, which slashed personal income tax rates, removed a number of value added tax exemptions as well as raised or added taxes on several goods and services, to be signed into law in December 2017 as Republic Act No. 10963.
Also enacted — on Feb. 14 — was RA 11213, or the Tax Amnesty Act, although this measure was watered down when Congress removed a provision that would have allowed tax authorities to check bank accounts of applicants to verify their asset declarations.
The 17th Congress, now on a Feb. 9-May 19 break around the May 13 mid-term elections, will have only May 20-June 7 left to work on measures. Any bill that fails to bag legislative approval by then will have to start from scratch in the 18th Congress that opens on July 22.
“I don’t think there’s any hidden issue. The Congress has been very transparent. The debates are not starting from zero,” Mr. Dominguez said.
He noted that S&P’s issuance of the new credit rating comes with a “road map to a second upgrade.”
“All you have to do is follow it, complete the tax reform program, sustain the deficit at three percent [of gross domestic product, or GDP] or less than three percent, don’t increase it, lower debt to GDP,” Mr. Dominguez said.
“The new Congress, I think, 90% of Congress seats are safe,” he noted, referring to the ruling party’s clout that should ensure support for Mr. Duterte’s reforms. “Only a very few is contested really.”
“It’s the Senate that’s little bit more fluid,” Mr. Dominguez said.
The May 13 legislative polls will see a total overhaul of the House of Representatives, from which tax bills emanate, and election of 12 senators, or half of the seats in that chamber.
SURE OF JUST ONE REFORM
For Senate President Vicente C. Sotto III, whose term ends in mid-2022 with Mr. Duterte, only the package slashing corporate income tax rate has a good chance of making out of Congress within the next two years.
“Oo, kaya naman (Yes, that is doable),” Mr. Sotto told reporters at the sidelines of an election campaign rally in Calamba, Laguna on Monday when asked on corporate tax reform’s approval chances in that period.
Pressed on the other tax reforms, he replied: “Mahihirapan kami, pero pipilitin namin kung ano ang kaya (It will be difficult for us to approve the rest, but we will do what we can).”
The House approved on third and final reading in September last year the bill slashing corporate income tax rates and removing redundant fiscal incentives; bills providing a unified real property valuation and assessment framework as well as giving government a bigger slice of miners’ earnings in November; as well as measures simplifying the tax structure of financial instruments and increasing excise taxes on alcohol and tobacco products the following month.
All remaining tax reforms await approval at the committee level in the Senate, and Mr. Sotto had said on March 21 that he was “doubtful at this point” of these measures’ chances of making it out of the 17th Congress. — R. J. N. Ignacio with C. A. Tadalan