How PSEi member stocks performed — December 27, 2019
Here’s a quick glance at how PSEi stocks fared on Friday, December 27, 2019.
Tobacco excise tax reduced consumption, think tank finds
By Beatrice M. Laforga
HIGHER excise taxes on tobacco products helped reduce consumption, but the impact of increased prices on alcohol and petroleum products was minimal, state think tank said.
“Increasing the excise tax on tobacco during the period (2008-2018) was an effective measure to discourage Filipinos from smoking and raise revenue as evidenced by the decreasing demand in tobacco products,” The National Tax Research Center (NTRC) said in its July-August tax research journal, “Elasticity of Demand of Selected Excisable Products: CY 2008-2018.”
The NTRC said from 2008 to 2018, the volume of removals, or products released to market from tax-regulated storage, of cigarettes packed in 20s, averaged 4.22 billion, and generally saw a decreasing trend in most years.
However, removals rose 26% to 3.98 billion in 2018 when the Tax Reform for Acceleration and Inclusion (TRAIN) Act took effect, from 3.14 billion in 2017, it said.
“The increases in the volume of removals of cigarettes during the period (2018) were due to frontloading of manufacturers in years before an increase in excise tax,” the NTRC said.
For alcohol products, the study showed that demand for fermented liquors was elastic, indicating that a 1% increase in the price of beer reduces demand by around 1.42% while demand for distilled spirits and wines were deemed inelastic.
“The increased excise tax on alcoholic products was seen to have a low effect on its consumption,” it said.
Likewise, the volume of removals of alcohol products saw mostly an increasing trend, indicating that change in the excise tax rates on the products were ineffective in discouraging consumption, NTRC cited.
The study also found higher excise tax on petroleum products did not affect consumption significantly since the products have limited substitutes and are considered necessities.
“Imposing excise tax on petroleum products to address environmental and health issues will be more effective if there are substitutes for fuels for transportation and manufacturing sector,” it said.
Meanwhile, NTRC found that consumers are willing to spend extra income on buying cars despite higher prices due to the increased excise tax “since they prefer to own a car than utilizing public transportation.”
It said the government can still raise the excise tax on automobiles for revenue-generation purposes since the price is inelastic.
Looking at the price elasticity of demand of the various products, a coefficient higher than one means the demand is elastic or that consumers are highly responsive to changes in price which could lead to change in demand.
In contrast, a coefficient less than one indicates inelasticity which means consumers are not that responsive to change in price.
Based on income, the study found that all products studied had positive income elasticity, indicating any increase in consumer’s income will lead to higher consumption of cigarettes, fermented liquors, distilled spirits, wine, gasoline, diesel, household liquified petroleum gas (LPG) and automobiles.
In 2018, excise tax collections on these products totalled P290.51 billion, up 38% from 2017.
Republic Act No. 10963 or the TRAIN Act took effect in 2018, increasing the excise tax on some goods and services while slashing personal income tax.
HIGHER TAX IN 2020
Starting Jan. 1, some consumer goods will be slapped with higher excise tax anew as the third tranche of the TRAIN takes effect.
The excise tax on cigarettes were increased to P37.50 per pack from P35 previously, and will be further raised to P40 per pack on Jan. 1, 2022.
However, this provision was amended when Republic Act No. 11346 was signed in July, increasing it further to P45 per pack starting this year, P50 in 2021,P55 in 2022 and P60 in 2023.
Heated tobacco products were also levied a P10 per pack tax while vapor products will be charged a P10 excise tax for every 10 ml starting Jan. 1, with a 5% increment starting Jan. 1, 2021.
According to the TRAIN Act, the excise tax on regular and unleaded premium gasoline also rose to P10 per liter from P9 previously. The same P10-per-liter rate also applies to lubricating oils and greases, asphalt, processed gas, waxes and petrolatum as well as naptha.
The kerosene excise tax also rose to P5 per liter from P4 previously while that of diesel fuel oil and bunker fuel increased by P1.50 to P6 per liter, from P4.50 previously.
The LPG excise tax was increased to P3 per kilogram from P2 previously.
Meanwhile, the tax on mineral products was raised to P150 per metric ton from P100 previously.
In the nine months to September, revenue generated from higher taxes imposed by TRAIN Act amounted to P91.3 billion, 18% higher than the projected P77.3 billion and 107% higher year-on-year, according to the Department of Finance.
Latest collections accounted for 80.8% of the P113.1-billion full-year target for 2019.
NEDA issues national transport policy implementing rules
By Jenina P. Ibañez
THE National Economic Development Authority (NEDA) released on Monday the Implementing Rules and Regulations (IRR) of the National Transport Policy.
NEDA said that this “sets the direction of and parameters for the integrated development and regulation of the Philippine transport sector.”
The IRR said that a Philippine Transportation Master Plan will be formulated, which will guide transport agencies and local governments in developing the transport network “through coordinated planning and operation of projects and programs as an integrated network.”
NEDA set regulations for passenger transport services, where routes of operation will be determined by travel demand and route capacities.
The Land Transportation Franchising and Regulatory Board (LTFRB) will evaluate the public transport network based on local demand and infrastructure, opening the routes to operators through a competitive selection or bidding process without preferential rights.
The appropriate regulatory body sets and adjusts transportation fees, and may intervene in fee-setting contractual arrangements that adversely affect the public interest.
Shipping and airline operators set their fares, but may be subject to intervention to protect the public interest.
The IRR also addressed congestion concerns, prioritizing “cost-effective mobility management measures” over expensive infrastructure facilities.
Traffic measures include improved road and bridge designs, parking restrictions, consolidated traffic ordinances, and traffic education. The IRR calls for providing alternative routes for trucks in cases of bans and the development of shipping ports outside of Metro Manila.
The IRR included regulations for economic sectors — strengthening the supply chain by removing arbitrary local government costs and improving the agriculture and tourism sectors providing transport infrastructure for economic sectors.
The relevant transport agencies will provide a single transport document for customs, immigrations, quarantine, environmental protection, and security across all transport modes, as well as a one-stop shop for administrative processes.
The IRR set the responsibilities of national and local government, setting the use of national government resources to national roads and transport infrastructure that connect regions and serve as international gateways, among others.
Local governments will be required to prepare a transportation sector plan to exercise primary responsibility in constructing and maintaining local transportation.
The IRR also set the parameters for private sector participation and collaboration between local and national government.
The regulations set parameters to separate redundant functions of transport agencies and for the improvement of coordination between transport agencies and local government.
Senate panel declares POGO investigation a priority when session resumes
THE Senate Committee on Labor, Employment, and Human Resources Development has set as a priority an investigation on the Philippine Offshore Gaming Operators (POGOs) industry when legislative session resumes, its Chairman said.
Senator Emmanuel Joel J. Villanueva said in a phone message Tuesday that among the concerns the committee will tackle is “the inquiry, in aid of legislation, on the unusual influx of illegal foreign workers in the country, especially in the POGO and POGO-related industry.”
The Department of Labor and Employment (DoLE) reported that 111,583 Alien Employment Permits were issued in 2019; of which 83,764 were issued to POGO-related establishments.
DoLE also noted that out of 118,239 registered workers in the industry, 97,283 are foreign workers, as of Dec. 10.
Mr. Villanueva had earlier filed Senate Resolution No. 67 to also look into unregistered POGO workers and the industry’s failure to remit taxes to the Bureau of Internal Revenue (BIR).
The Department of Finance has estimated that some P24 billion is foregone annually for every 100,000 unregistered POGO workers.
A more recent concern is abductions related to the gaming sector, mostly involving Chinese nationals. The Philippine National Police Anti-Kidnapping Group reported 36 casino-related kidnappings from January to November 2019.
Senate President Pro Tempore Ralph G. Recto and Senator Sherwin T. Gatchalian have likewise filed resolutions to investigate the POGO industry to ultimately ensure its compliance with policies on security, immigration and taxes among others.
“We want to investigate whether the benefits of the industry outweigh its direct and indirect adverse effects, such as rising criminality, threat of money laundering, increasing property prices, among others,” Mr. Villanueva also said.
Mr. Recto, under Senate Resolution No. 85, raised security concerns over initial plans to transfer POGOs to designated hubs in Cavite and Pampanga.
Resolutions seeking to investigate the POGO industry are likewise pending at the House Committee on Labor and Employment; while a measure that proposes to tax gaming firms has been declared a priority by the House Committee on Ways and Means.
The committee, led by Rep. Jose Ma. Clemente S. Salceda of Albay’s second district, has approved House Bill No. 5777, which among others will tax alien individuals working in offshore gaming firms. It is expected to generate P20 billion to 45 billion. No counterpart measure has so far been filed in the Senate.
Congress is currently on a month-long break and is set to resume work beginning Jan. 20. — Charmaine A. Tadalan
Gov’t departments vetting proposed nuclear policy
THE Energy department said other government agencies are now vetting the atomic energy policy it proposed to Malacañang, the outgoing head of the Nuclear Energy Program Implementing Organization (NEPIO) said.
“As far as I know, the Office of the President has been asking,” Department of Energy (DoE) Undersecretary Donato D. Marcos said in a recent interview when asked about an update on the recommendation.
“The other agencies are reviewing,” he added, citing the Department of Science and Technology, and the Philippine Nuclear Research Institute (PNRI) as among the key evaluators.
NEPIO, a panel created under the DoE, was chaired by Mr. Marcos before he relinquished his position. He did not disclose the reason for his departure, but he said he already has enough of a workload at the department.
He declined to confirm whether DoE Assistant Secretary Gerardo D. Erguiza, Jr., the NEPIO vice-chairman, would take over as head of the organization. Mr. Erguiza led the DoE team, assisted by PNRI, in a meeting in Austria around mid-November with the International Atomic Energy Agency (IAEA).
Mr. Marcos said before his departure, NEPIO had made strides in advancing the country’s adherence to IAEA requirements.
“We have this INIR (Integrated Nuclear Infrastructure Review) program. We attended IAEA for the integrated work program,” he said.
The INIR mission, which was conducted by IAEA, assists its member states in evaluating the status of 19 infrastructure requirements to determine the possibility of introducing a safe, secure, and sustainable national nuclear program.
In October 2016, Energy Secretary Alfonso G. Cusi called for the creation of NEPIO to comply with IAEA’s policy guidelines. The organization led “unified and coordinated” efforts and activities in holding studies and research on the feasibility of nuclear energy development.
On Dec. 10, 2018, the mission’s first phase was held in Manila, during which the DoE presented its self-evaluation report outlining the progress made in meeting the 19 requirements, which serve as a guide for countries considering the adoption of nuclear power.
The mission’s phase one report, which is the first of three, contains IAEA’s initial findings on the country’s existing good practices and the improvements it had undertaken.
It also covers the agency’s recommendations and suggestions for NEPIO’s preparation of an integrated work plan, which will answer IAEA concerns should the government decide to pursue the use of nuclear power as a potential source of energy for the country.
However, Mr. Marcos said a crucial piece of infrastructure remains missing.
“One of the very first ‘infrastructure requirements’ is the national position (on nuclear energy),” he said. “We’re waiting for the national position, which is now (with) the Office of the President.”
He said the DoE while waiting for that policy would continue to work on the other “parallel” requirements as the department maintains its stance to be technology-neutral by tapping other available energy sources. — Victor V. Saulon
DENR wants LGUs to impose penalties in addition to RA 9003
THE Department of Environment and Natural Resources (DENR) said it is encouraging local government units (LGU) to pass ordinances penalizing improper trash disposal over and above the penalties laid out in Republic Act (RA) No. 9003.
“We want to encourage the local government to come up with an ordinance which is… on top of the P1,000 (of RA 9003)… so that once and for all ang ating mga mamamayan (our citizens) will take the garbage issue seriously,” Undersecretary for Solid Waste Management and Local Government Unit Concerns Benny D. Antiporda said in a phone interview.
Also known as the Ecological Solid Waste Management Act of 2000, the law sets out guidelines for solid waste management and penalizes litterers and garbage dumpers with fines of between P300 and P1,000. An alternative penalty is community service of between 1-15 days.
Mr. Antiporda said that the department is also pushing legislators to amend the 20-year-old law since it has not had a major impact.
“For 20 years hindi tayo naging successful so we need to amend it para lalo pang palakasin yung ating batas (we were not successful so we need to amend it to strengthen enforcement),” he said in a news conference on Wednesday in Quezon City.
Mr. Antiporda said that he is hopeful that LGU ordinances and Congressional amendments will be done within 2020. If properly implemented, he said that only 20-30% of the country’s waste will end up in landfills.
“This is a good suggestion. I know this will become successful if we will make drastic moves on how we can change the culture of the people when it comes to taking care of their waste,” he said.
The DENR plans to propose an additional P7.2-billion budget in 2021 to build sanitary landfills for each of the 248 congressional districts. Mr. Antiporda said that if the procurement process is fast-tracked, the implementation could be completed in a year.
If this plan succeeds, he said the goal for the succeeding year is two landfills for every district. — Vincent Mariel P. Galang
Poultry imports rise amid ASF; oversupply seen
IMPORTS of day-old chicks (DOC) — the key raw material for the poultry industry — rose 8% year-on-year in the nine months to September, the Department of Agriculture (DA) said.
Imports of DOCs, which are raised to become broiler chickens, hit 1.498 million in the first nine months of 2019, from 1.376 million a year earlier.
Imports of grandparent stock Female-Line-Female (GP FLF) DOCs totaled 351,520, up 17% year-on-year, while parent stock (PS) female DOC imports totaled 1.146 million, up 6% year-on-year.
The top sources of imports were the US, the Netherlands, Belgium, Australia, UK, Germany, France, Denmark, and Austria.
“The breeder industry has noted a problem or decline in the productivity of traditional breeds such as Cobb and Ross. That is why they are also trying other breeds such as Arbor Acres,” Lary Nel B. Abao, market specialist III of the DA Agribusiness and Marketing Assistance Service, said in an e-mail.
He noted that at current rates of importation, shipments could hit 1.822 million by the end of 2019, up 23% year-on-year, with GP FLF accounting for 473,563, and PS female 1.348 million.
For 2020, Mr. Abao said: “The continuing threat of African Swine Fever (ASF) might turn the tide in favor of chicken companies as pork eaters continue to switch to chicken consumption. The world market is also a factor as China might gobble up majority of the GP and PS imports because of continuing ASF problems,” he added.
United Broilers and Raisers Association Chairman Gregorio A. San Diego said the level of imports indicate that the industry expects consumers to continue consuming more chicken than pork, which could produce a broiler oversupply in 2020.
“Importing DOC for broiler production is very expensive and I will be surprised if this is true. The impact will be broiler over supply up to 2020,” he said in a text message.
“I think we have more than enough breeders here at present. If true, maybe they are anticipating that low pork consumption will linger for quite some time but with huge volume of chicken meat imports coming in and with huge inventory of frozen pork in cold storage I think we’ll have a chicken oversupply after Christmas extending to the 1st quarter of 2020,” he added. — Vincent Mariel P. Galang
CITEM sets $336-M export order target from events lineup
THE Center for International Trade Expositions and Missions (CITEM) set a $336 million target for export orders across its events for 2020.
The export promotion arm of the Department of Trade and Industry (DTI), CITEM organizes Philippine delegations to international trade expos and creates programs to develop export products and services.
The target for next year is just below the 2019 target of $337 million. The 2020 target includes a goal of 18,000 trade inquiries and 9,000 unique buyers.
CITEM executive director Pauline Suaco-Juan said in a phone interview on Dec. 23 that the center is focusing on switching to a digital strategy to reach its 2020 target.
“We’re doing a greater focus on content marketing and digital marketing. This is something CITEM hasn’t tried yet,” she said.
CITEM will create digital content to build social media campaigns promoting Philippine products in trade fairs. She said the campaigns will help the Philippines reach a network of trade show buyers beyond CITEM’s database.
“We’re hoping to leverage the market intelligence that we have, and communicating a solid visual message in terms of the campaigns that we are doing within the different trade fairs.”
The development of a digital trade and community platform for Manila FAME, a design and lifestyle event, is a key strategic measure for CITEM’s performance in 2020.
As DTI prepares for the Dubai World Expo 2020, CITEM is putting together a calendar of trade and business events in the United Arab Emirates occurring in tandem with the expo.
“While the pavilion in itself is going to be a showcase of the creative industry, the side events that take place simultaneously and leading up to the expo is really going to be about trade in the middle east,” Ms. Suaco-Juan said.
The Philippine delegation to the expo is setting up an P800-million pavilion and exhibitions showcasing the country’s creative sector.
Ms. Suaco-Juan said that the trade events in the area will focus on promoting Philippine halal products.
CITEM kicked off its participation in 2019 through food, beverage, and hospitality exhibition SIAL Middle East in Abu Dhabi. It will be joining food and beverage exhibition Gulfood in Dubai in February.
CITEM will release its trade agenda for the area in early 2020.
CITEM expects to participate in around 24 events this year. — Jenina P. Ibañez
CTA grants Philsaga bid to cancel P339-million tax deficiency
THE Court of Tax Appeals (CTA) has ruled in favor of a mining firm and cancelled its claimed tax deficiency of P339 million for the fiscal year ending June 2013.
In a 23-page decision dated Dec. 17, the court’s second division said the Bureau of Internal Revenue (BIR) violated the right to administrative due process of Philsaga Mining Corp., rendering the tax assessments “null and void.”
“Undoubtedly, therefore, respondent violated petitioner’s right to administrative due process. As a consequence, respondent’s disregard of due process in this case renders the subject deficiency tax assessments null and void. Such being the case, the said deficiency tax assessments bear no valid fruit,” the court said.
“In view of this Court’s finding of the nullity of the said deficiency tax assessments, it becomes unnecessary to address or resolve the remaining issue raised by the parties,” it added.
Philsaga claimed that the final decision on disputed assessment (FDDA) was not issued according to law which violates its right to due process, making it null and void.
The BIR, on the other hand, claimed that the company was not deprived of its right to due process and is liable for the alleged deficiencies.
According to the Section 228 of the National Internal Revenue Code, an assessment may be protested administratively within 30 days through the filing of request for reconsideration or reinvestigation from the receipt of the assessment.
Revenue Regulation No. 12-99 was also issued which implemented the said section of the law prescribing due process requirements in tax assessments.
All relevant supporting documents for request for reinvestigation shall be submitted within 60 days from the filing of protest. The bureau has 180 days to decide on the protest, according to regulation.
The court, however, said that the BIR issued the FDDA 43 days after the filing of the company’s protest letter for reinvestigation and requested immediate payment of the supposed tax liabilities.
“Thus, it is clear that respondent did not allow petitioner to submit all relevant supporting document within the sixty-day period from the filing of the request for reinvestigation,” the court said.
The court also cited its previous ruling and a decision of the Supreme Court which emphasized observance of due process in issuance of tax assessments; otherwise, the assessments are null and void.
“Wherefore, in light of the foregoing considerations, the instant Petition for Review is granted. Accordingly, the FDDA dated June 28, 2016 issued against petitioner is withdrawn and set aside. Moreover, the FLD and FAN, both dated April 13, 2016 issued by the BIR, assessing petitioner for deficiency income tax, EWT (expanded withholding tax), and compromise penalty, for FY ending June 30, 2013 are cancelled and set aside,” the court said.
The decision was written by Associate Justice Juanito C. Castañeda, Jr. and was concurred in by Associate Justices Cielito N. Mindaro-Grulla and Jean Marie A. Bacorro-Villena. — Vann Marlo M. Villegas
Holding companies not subject to LBT on passive income
The start of a new year (and in this case, the closing of a decade) is usually filled with hope and optimism. People generally scribble their resolutions, looking forward to another year of achieving more goals and milestones. For finance and accounting practitioners, the new year also marks the beginning of busier times ahead (especially those in companies that follow the calendar year as their accounting period), starting with the closing of accounting books and typically ending with the filing of the annual income tax return.
All businesses, regardless of accounting period, are required to secure business permits on or before the annual statutory deadline of Jan. 20. In general, part of the process of securing a business permit is the payment of local business tax (LBT) in the municipality or city where the business operates. The Local Government Code (LGC) empowers municipalities and cities to enact their respective local ordinances, imposing LBT within the bounds and limitations provided under the LGC. Depending on the type of business and the amount of gross sales/receipts during the preceding calendar year, an LBT can be:
a) fixed in amount, following the schedule of graduated LBT amounts per local ordinance;
b) computed by multiplying the gross sales/receipts during the preceding calendar year with the applicable LBT rate per local ordinance; or
c) a combination of both items (a) and (b) above.
In recent years, it has been the practice of some local government units (LGUs) to impose LBT on holding companies for their passive income (e.g., dividend and interest income). Such imposition of LBT can be considered questionable given judicial pronouncements to the contrary. Several cases decided by the Court of Tax Appeals (CTA) in previous years, involving various companies and LGUs, have consistently ruled that holding companies are not subject to LBT on their passive income.
Notwithstanding, some companies pay the LBT anyway for fear of not getting their business permit from the LGU. Strictly speaking, there is no legal basis to withhold the issuance of a business permit for the non-payment of LBT. In practice though, most, if not all, LGUs will refuse to issue the permit to those who do not pay (or more accurately, do not agree to pay the LBT being imposed). Constrained by this prevalent practice, some companies would initially opt to pay LBT on passive income being billed by an LGU to secure their business permit, and subsequently file a claim for refund to recover the erroneously paid tax.
Perhaps there is hope this new year. In a Supreme Court (SC) case, docketed G.R. No. 241697 dated July 29, 2019, the high court upheld previous CTA decisions, affirming the taxpayer’s claim for refund of erroneously paid LBT on its dividend income. As explained in the SC decision, the taxpayer is a holding company, and for LBT purposes, it was taxed by the LGU as a non-bank financial intermediary (NBFI). The LGU cites Section 143(f) of the LGC, which provides that banks and other financial intermediaries are subject to LBT on their gross receipts derived from dividends, and interests, among other sources of income. The definition of “banks and other financial intermediaries” specifically includes NBFIs.
According to the SC, LBT is imposed on the privilege of doing business within the LGU’s jurisdiction. The phrase “doing business” means some “trade or commercial activity regularly engaged in as a means of livelihood or with a view of profit.” Thus, the LBT imposed under Section 143(f) of the LGC is premised on the fact that the persons liable for such tax are banks or other financial intermediaries by virtue of their being engaged in the business as such.
Citing the Tax Code, banking laws, and pertinent regulations, among others, the SC ruled that the taxpayer is not an NBFI as it is not an entity authorized by the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking functions. Further, the high court made a distinction between a “holding company” and a “financial intermediary” as contemplated under the LGC, vis-a-vis other laws:
A “holding company’ is ‘organized’ and is basically conducting its business by investing substantially in the equity securities of another company for the purpose of controlling their policies (as opposed to directly engaging in operating activities) and ‘holding’ them in a conglomerate or umbrella structure along with other subsidiaries.” While holding companies may partake in investment activities, this does not per se qualify them as financial intermediaries that are actively dealing in the same. Financial intermediaries are regulated by the BSP because they deal with public funds when they offer quasi-banking functions. On the other hand, a holding company is not similarly regulated because any investment activities it conducts are mere incidental operations, since its main purpose is to hold shares for policy-controlling purposes.
Since the taxpayer is a holding company and not a bank or financial intermediary (i.e., an NBFI), the SC concluded that it could not be liable for LBT under Section 143(f) of the LGC.
Since SC decisions form part of jurisprudence and have the force and effect of law, hopefully, this case lays to rest the issue on the imposition of LBT on the passive income of holding companies. Nevertheless, it can be anticipated that LGUs might still insist on imposing LBT on holding companies, perhaps by arguing that the ruling does not apply to them because the party in the case involved only a specific LGU. Even the SC case itself concludes in the following manner: “this pronouncement is without prejudice to [the taxpayer’s] potential liability for other taxes, whether national or local, should it so engage in other profit-making activities aside from its management of the [investee’s] preferred shares, and the dividends resulting therefrom.” Though the case brings light to the controversy, companies should remain vigilant in ensuring they only pay taxes that are legally due from them.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Marion D. Castañeda is a Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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Peso seen weakening this year
AFTER REBOUNDING against the greenback in 2019, the peso might weaken this year on the back of a possibly wider trade deficit and as investors wait on the sidelines for the clarity of some business-related rules in the country.
Such pressures could drag the peso back to the P52-per-dollar level, according to an economist.
The peso ended at P50.635 per dollar on Dec. 27 — the last trading day of 2019 — stronger by P1.945 year on year from its close of P52.58 on Dec. 28, 2018.
In a note to reporters on Dec. 12, ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa said the recent pause in monetary easing by the central bank could be the key to the appreciation of the local unit, aside from the seasonal flows of remittances from Filipino migrants.
“However, given the projected acceleration of the government’s infrastructure program, we expect the peso to face renewed depreciation pressure in the coming months as the trade balance is forecast to widen further into deficit,” Mr. Mapa said.
The Bangko Sentral ng Pilipinas (BSP) last year slashed key policy rates by a total of 75 basis points (bps) as prices of commodities cooled down, resulting in a benign inflation environment after price spikes in 2018 that triggered the BSP rate hikes.
Meanwhile, latest data from the Philippine Statistics Authority (PSA) showed the country’s balance of trade in goods as of October was at a trade deficit of $3.25 billion, slipping 26.4% from the $4.42 trade deficit seen in the same period in 2018.
UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion also sees that trade recovery would be “critical” for peso trading, specifically the country’s import performance.
He added that perception of the investment climate in the country will also be a key factor for the peso.
“Markets and investors need to see and feel the clarity of the rules and the insurance of proper execution on the side of the government,” Mr. Asuncion said in a text message on Dec. 27.
The Corporate Income Tax and Incentives Rationalization Act (CITIRA) has been approved in the House of Representatives. However, it is still awaiting its verdict in the Senate.
Among the propositions of the bill is the reduction of corporate income tax to 20% from 30% over 10 years to make the country have better competitive advantage in the region where average income tax rate is at 22.4%, according to data from the Philippine Exporters Confederation, Inc.
Meanwhile, the peso may be supported by improved risk appetite in 2020 due to recent positive developments in the trade negotiations between the world’s two biggest economies.
“For 2020, the peso exchange rate could continue to be relatively stable…after the phase one US-China trade deal which could be a step in the right direction to support…sentiment in emerging market economies and financial markets such as the Philippines,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a text message last Friday.
Aside from this, Mr. Ricafort is bullish that the country’s dollar reserves will help prop up the local currency against the dollar.
“The peso exchange rate could also be supported by new record highs in the country’s GIR (gross international reserves) and relatively better BoP (balance of payments) data…as well as continued growth in OFW (overseas Filipino workers) remittances, BPO (business process outsourcing) revenues, foreign tourism receipts, and some pick in foreign investment inflows,” he added.
Central bank data showed the country’s dollar reserves as of end-November stood at $86.23 billion, which is enough to cover 7.5 months’ worth of imports of goods and payments of services and primary income.
Meanwhile, the country’s BoP position was at a surplus of $778 million as of the third quarter, a reversal of the $1.9-billion deficit logged in the same period a year ago. This was on the back of increased net inflows in the financial account paired with a lower deficit in its current account.
For this week, Mr. Ricafort thinks a vital catalyst for peso movement would be US data on employment and new cues “for the direction of the US-China trade talks.” He sees that the peso trading at a range of P50.40-50.80 from Thursday to Friday.
Reuters reported that White House trade adviser Peter Navarro said in a Dec. 30 interview with Fox that the much awaited phase one deal between Washington and Beijing would likely be signed by next week, although he said that the confirmation will come from US President Donald J. Trump or the US Trade Representative.
Mr. Navarro also cited a South China Morning Post report which said that Chinese Vice Premier Liu He would visit the US next week to sign the deal, although Mr. Navarro did not confirm it.
For his part, UnionBank’s Mr. Asuncion expects the local unit to move within the P50.50-50.80 band this week as he expects “the strength to continue until we see imports recovering by at most Q1 2020.”
For the entire year, RCBC’s Mr. Ricafort sees the peso moving around P50-51 versus the dollar. Meanwhile, UnionBank’s Mr. Asuncion believes the local unit will trade from the P51-52.50 against the dollar, with the peso seen to end the year at P52.19. — L.W.T. Noble with Reuters
Shares to climb on budget’s signing, trade deal
LOCAL SHARES are seen to move upwards on the first trading day and week of 2020 as investors expect the signing of the national budget for this year and positive developments in the US-China trade war.
The bellwether Philippine Stock Exchange index (PSEi) closed the previous year on a negative note, losing 0.34% or 27.02 points to 7,815.26. The market was up by 4.7% from its finish of 7,466.02 in 2018.
“We have an upward bias for the first trading day and week of 2020. The national budget is also expected to be signed on time this 2020. Coupled with the low interest rates, we have accommodative policies that could boost the market [this] year,” Japhet Louis O. Tantiangco, senior research analyst at Philstocks Financial Inc. said in a text message.
The proposed P4.1-trillion national budget for 2020 secured approval from the Bicameral Conference Committee on Dec. 12. It was also ratified by both the House of Representatives and the Senate on the same day. What is left is the signature of President Rodrigo R. Duterte for its enactment.
This is seen to prevent the delay that happened with the P3.757-trillion budget for 2019 which was signed April 15, where about P95.3 billion was vetoed. This, coupled with the ban on new public works ahead of the May 13 midterm elections, slowed economic growth to 5.8% in the first three quarters of 2019 from 6.2% year-on-year and versus the 6-7% target of the government for 2019.
Mr. Tantiangco also expects some bargain-hunting as many shares remain at attractive levels and amid favorable developments in the negotiations between US and China.
US President Donald Trump announced that he will be signing the phase one deal of the two economic giants’ trade agreement on Jan. 15, which will be signed in Washington. This is expected to reduce tensions between the two.
Negotiations for phase two of the deal will then be done in Beijing.
“These could induce investors to take up positions by the start of 2020. Support is at 7,800 while resistance is at 8,000,” Mr. Tantiangco noted.
“With the early approval of the 2020 budget plus the continued approval of the spending of the 2019 budget coupled with the positive developments in the US-China trade negotiations, this will provide better growth prospects for the incoming year,” Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said in a separate text message, and placed the PSEi’s support and resistance levels at 7,772 and 7,900, respectively, this week.
On the other hand, PNB Securities, Inc. President Manuel Antonio G. Lisbona is projecting slow trading given the shortened week and with many investors still on holiday.
“Movers will be the water concessionaire related names (AC [Ayala Corp.], DMC [DMCI Holdings, Inc.], MPI [Metro Pacific Investments Corp.], and MWC [Manila Water Co., Inc.]). Trading range will be 7,700 to 8,000,” he noted. — Vincent Mariel P. Galang