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More fiscal reforms needed for ‘A’ rating

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Ernesto M. Pernia
BERNARDINO P. TESTA

THE sovereign credit rating upgrade by Japan’s Rating and Investment Information, Inc. (R&I) could spur investment and boost infrastructure development, but more fiscal reforms need to pass before achieving a rating level of “A,” the chief economic planner said.

“The credit rating upgrade for the Philippines by R&I will enhance the country’s investment climate and creditworthiness. Wider fiscal space enables the country not only to spend more on infrastructure but also invest in ‘suprastructure’ — quality education and Science & Technology Innovation ecosystem required for the Philippines to become a globally competitive knowledge economy,” Socioeconomic Planning Secretary Ernesto M. Pernia told reporters in a mobile phone message over the weekend.

On Friday, R&I upgraded the Philippines’ credit rating to “BBB+” from “BBB” with a “stable” outlook, just a notch away from the “A” rating.

R&I said it considered sustained economic growth driven by aggressive public investment, a downward trend in the share of debt to the economy despite a widening fiscal deficit, rising revenue as well as developments in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).

Asked to comment, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the Philippines could hit the A rating level ahead of its two-year plan, or before 2022, if critical fiscal reforms pass into law this year.

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“If all critical fiscal reforms are passed into law and critical infrastructure development are carried out and implemented, an “A” credit rating is indeed possible,” Mr. Asuncion said in a phone message.

The Department of Finance is still hoping that the remaining tax measures of the Comprehensive Tax Reform Package (CTRP) are passed this year.

The Senate is currently finalizing the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, representing Package 2 of the CTRP, with the bill expected to be sponsored out of committee and into the plenary this week.

The measure seeks to gradually lower the corporate income tax to 20% while rationalizing fiscal incentives given to businesses.

Another bill currently being deliberated in Congress is the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA) bill, which aims to reduce taxes on passive income, currently one of the highest in Southeast Asia.

Senate Ways and Means Committee Chairman and Senator Pilar Juliana S. Cayetano had said that the one-year timetable to pass all the remaining bills will not be her “sole decision,” but assured that she can at least have it sponsored in the plenary.

The other measures still being legislated are tax bills dealing with real property valuation and mining.

On Jan. 22, President Rodrigo R. Duterte signed into law the bill raising the tax on alcohol products, electronic cigarettes and other vapor products representing Package 2+ of the CTRP.

Other measures of the tax reform plan that have been passed into law were Republic Act (RA) No. 10963, which slashed personal income tax rates and increased or added levies on several goods and services, and RA 11213, which grants an estate tax amnesty and an amnesty on delinquent accounts left unpaid after being given final assessment.

“A credit rating upgrade from any of the credit rating agencies is always a good sign that the economy will and can improve moving forward,” Mr. Asuncion said.

S&P Global Ratings, Fitch Ratings and Moody’s Investors Service rate the Philippines at “BBB+”, “BBB” and “Baa2,” respectively. — Beatrice M. Laforga

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