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Nation at a Glance — (01/23/18)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Hoping for the best on VAT refunds under TRAIN

One of the concerns of corporate taxpayers is how to optimize their assets, including input value-added tax (VAT), for day-to-day operations. When the input VAT remains unutilized for a long period, however, it becomes a trapped asset.

Before the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law, taxpayers observed that most unutilized input VAT refund applications administratively filed with the Bureau of Internal Revenue (BIR) were unsuccessful. Consequently, most of them either sought relief with the Courts or let the input VAT float in the company’s books. These situations are disadvantageous, considering the costs of filing and litigating a case in the Court of Tax Appeals (CTA) and of money while the input VAT remains unused.

Is there something in the TRAIN law that would encourage taxpayers to be more hopeful about their VAT refunds? Under the TRAIN law, there are salient provisions that pertain to input VAT refunds, where the input VAT relates to the taxpayers’ VAT zero-rated sales/receipts.

1. 120 DAYS REDUCED TO 90 DAYS
Comparing the old provisions of the Tax Code and the TRAIN law, the period within which the BIR should decide on a VAT refund application was reduced from 120 days to 90 days. This is a welcome development, as VAT refund applications will now be processed at a faster pace.

In line with the reduced period, the BIR could consider revisiting the long list of documentary requirements for applying for a VAT refund. An evaluation could be made whether there are superfluous documentary requirements that may be removed. This action of reducing requirements will definitely make the VAT refund evaluation faster for the BIR.

2. NO MORE ‘DEEMED DENIAL’ RULE
The old rule included a “deemed denial” provision. This means that when no decision is issued by the BIR within 120 days, the application is deemed denied, and the taxpayer may seek relief with CTA within 30 days after the BIR’s 120-day period to review the application. In other words, there is no more need to wait for the BIR’s decision if the 120-day has lapsed, in order for the taxpayer to go to court.

This is not the case under the TRAIN law. An appeal to the CTA may only ripen after the taxpayer’s receipt of the BIR’s decision denying the claim for VAT refund. Should the BIR find that granting a refund is not proper, the BIR Commissioner must state in writing the legal and factual basis for such denial. The receipt of the decision has become a necessary requirement before judicial relief may be availed.

Hopefully, the taxpayers will get equitable resolutions from the BIR as fully and categorically explained by the Bureau in the decisions it will make. There will be no more “implied” decision of denying the taxpayer’s application.

3. PERSONAL ACCOUNTABILITY OF BIR OFFICERS
An interesting provision in the TRAIN law empowers the taxpayer to file a criminal complaint against a BIR officer who deliberately fails to act on the application for refund within the prescribed period. The imposition of criminal liability is a heavy sanction for an erring BIR officer, in addition to the penalties of perpetual disqualification to hold public office, to vote, and to participate in any public election.

Many are hopeful that this personal accountability of BIR officers will make the review process of VAT refund applications more efficient. Others say that the addition of the above provision may be seen as a wake-up call. Some fear, though, that there might be a risk that, because of the inclusion of criminal liability provisions, the BIR could just render haphazard reviews and decisions on VAT refund application just to get away with the imposition of the said penalty.   

It has been the sentiment of taxpayers that there is a lot to be improved in the VAT refund process. The above changes under the TRAIN law could be a big leap. In the days to come, the implementing rules and regulations of the TRAIN law shall be released. We hope that the rules of VAT refund provide for a more expedient and simple process equitable in every way.

We wish that the VAT refund application procedures are streamlined and the list of requirements is significantly reduced. More important, the BIR must be fair and reasonable in deciding every claim for refund. Taxpayers expect nothing less than good regulations and proper implementation. This will likewise help businesses achieve global competitiveness. By moving a company’s assets from a mere paper asset to an asset which can be reinvested, we are definite that its ultimate effect will trickle down from the growth of businesses to the increase in government revenues.

The amended provisions discussed above are promising developments as intended by legislators. It is not only the duty of the business to grow its enterprise. The government also has a responsibility of making sure that businesses thrive in the domestic and global market. Let’s start by unlocking trapped assets and making them as useful as they were meant to be.

Eliezer P. Ambatali is a senior associate of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

2018 Inclusive development index

THE PHILIPPINES is expected to have clocked gross domestic product (GDP) growth in the fourth quarter of 2017 that put the full-year pace well within target, according to an assessment released yesterday. Read the full story.

Chinese cities’ moves to ease residency curbs fuel property demand

CHENGDU/BEIJING — China’s provincial capitals have discovered a way to keep apartment sales booming by making it much easier for graduates to get coveted household registration permits.

Authorities in the cities say the main aim is to lure talent to make their labor pools more attractive to companies. But the policies are undermining the authorities’ efforts to control property speculation and are artificially propping up prices, critics in the real estate and securities industries say.

The permits, known as hukou, have been used to control internal migration in China for many years. Without a permit, a resident of a city may not be able to get a whole slew of public services, including education and health care, and would sometimes have to live on the margins of society.

Now, cities such as Chengdu — the capital of Sichuan province in southwest China — are reversing the process by handing out hukou to college-degree holders. In Chengdu’s case that is anyone under the age of 45.

Not only that. They are in some cases providing these graduates with cash incentives if they buy an apartment.

For example, any post doctoral degree-holder who takes up hukou in central China’s Zhengzhou, capital of Henan province, will be handed 100,000 yuan ($15,617) for a first home purchase. For college-degree holders the incentive is 20,000 yuan.

As a result, hundreds of thousands of people have been able to buy properties that were otherwise off limits for them.

Take 27-year-old graduate Peter Li, who faced barriers to buying in Chengdu last year because he was from the northwestern province of Gansu.

Then in July the new policy was introduced, and he bought a three-bedroom apartment in the upscale high-tech zone of the city.

“Getting a hukou through the talent policy was a more convenient way to get around the housing curbs,” said Mr. Li, who moved to Chengdu, which has 17 million people, to work as a product manager in 2016.

By mid January — just over five months after the change — more than 120,000 people had been able to get a Chengdu hukou through the new policy, said Chengdu’s official Talent Work Leadership office.

And Chengdu’s resale market soared. The number of sales registered with the housing bureau, which could lag real-time transactions by up to two months, have climbed to 8,798 in December, up 40% from July’s 6,252, data from Chengdu property net showed. The local real estate portal says it tracks data published daily by the Chengdu housing bureau.

Average prices in some prime locations had risen to about 16,000 yuan ($2,498) per square meter in December, up about 30% from their levels in July, according to data from property realtors, including Fang.com.

At least 10 other provincial capitals, including Wuhan and Changsha in the central provinces of Hubei and Hunan respectively have also loosened their hukou rules, and some have offered incentives.

In such cities the changes have effectively weakened existing curbs brought in over the past year to tame speculation. That has prevented price falls and in some cases helped to trigger significant price increases, according to property agents and analysts.

“It’s a disguised way for the government to relax the curbs,” said a Chengdu-based agent at Lianjia, a large Chinese real estate agency, declining to be named as she was not authorized to speak to the media.

Traditionally, China’s four top-tier cities, Beijing, Shanghai, Guangzhou and Shenzhen, have been the most sought-after destinations for young and educated migrants seeking higher pay and better opportunities.

By contrast, less developed tier-2 provincial capitals have mainly been a magnet for people from smaller cities within the province.

While hefty living costs, soaring property prices and pollution have seen some reverse in flow from top-tier cities to provincial capitals, the wages gap is a big turn off.

Six property agencies in Chengdu surveyed by Reuters estimated between 50% and 70% of their sales have been made off newly minted Chengdu hukou holders in recent months.

The impact is gradually being felt at the national level. Official data on Thursday showed China’s new home prices accelerated to a five-month high in December, with property prices in tier-2 cities recording the strongest price growth.

The Chengdu government, in a faxed response to Reuters’ questions, said it did not set the bar excessively low for outsiders, stressing the importance of attracting talent as the city aspires to mirror the success of China’s top-tier cities.

The city will “continue to satisfy the needs of first-time home buyers and their rigid demand, and those who want to improve their housing conditions, while cracking down on speculation,” the government said.

Home buyers are still subject to existing tightening measures such as having to hold on to their properties for at least three years before selling.

China’s State Council Information Office (SCIO), which doubles as the Communist Party’s communications arm, said the moves undertaken by the tier-2 cities would only increase the size of qualified home buyers “by a small scale.”

Such demand — seen as the opposite of speculative forces — is in line with the view from China’s top leaders that “homes are meant for living, not for speculation,” it said.

Still, there is concern that the strategy will end up being counterproductive by fueling price rises, which in turn could make apartments too expensive for many people born and bred in these cities, building resentment against the city’s government and the newcomers allowed hukou.

There is also skepticism that this is really about attracting higher educated people to these cities. Instead, critics suggest it is largely about raising local government revenues through land sales.

“Having a diploma is not a big thing in China nowadays,” said Iris Pang, a Hong Kong-based economist at ING. A record 8 million students graduated from Chinese universities in 2017 — nearly 10 times the number in 1997.

Ms. Pang says without a proper set of criteria, such as a salary floor, the policy will fuel property price rises.

“It shows that local governments are very desperate to attract demand. It could mean that there is a fear of oversupply in those lower-tier cities,” Ms. Pang said. — Reuters

Speed bump or boost?

The Philippines, owing to the sustained growth it has been experiencing in recent years, now has one of the fastest-growing automotive industries in Southeast Asia.

The latest 2017 car sales figures show that growth in the country’s auto sector grew by nearly a fifth, or 18%, from 2016, keeping the string of annual double-digit growth of the industry unbroken since 2012. According to data from the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA), the groups’ member companies collectively sold 425,673 vehicles last year, up 18.4% from 359,572 units in 2016 and blasting through the group’s 2017 target of 400,500 units.

Yet, it would be hard to assume that such a trend would continue in 2018. With these new fortunes come new challenges, and for the country’s car makers, these are coming in the form of the Tax Reform for Acceleration and Inclusion (TRAIN) law, the first package of the comprehensive tax reform program envisioned by President Rodrigo R. Duterte’s administration that will raise excise taxes on vehicles and other products in lieu of lowering taxes for lower-income Filipinos.

In the words of Vernon B. Sarne in an opinion piece published in BusinessWorld last Dec. 20, “To wit, vehicles with a net selling price of P600,000 and below will now be taxed 4% (a maximum P24,000), compared to the previous 2% (a maximum P12,000). Vehicles with a net selling price of more than P600,000 up to P1 million will now be taxed a flat rate of 10%. Before, vehicles with a net price of more than P600,000 up to P1.1 million followed a graduated taxation formula of P12,000 (2% of P600,000) plus 20% of any amount exceeding P600,000.”

“Vehicles with a net selling price of more than P1 million up to P4 million will now be taxed a flat rate of 20%. Before, vehicles with a net price of more than P1.1 million up to P2.1 million were taxed P112,000 plus 40% of any amount exceeding P1.1 million,” he wrote.

“Vehicles with a net selling price of more than P4 million will now be taxed a flat rate of 50%. Before, vehicles with a net price of more than P2.1 million were taxed P512,000 plus 60% of any amount exceeding P2.1 million.”

The impact of the tax reform on the auto industry, of course, is already being felt. “While exceeding our sales target for the year, we remain cautious in our projection for 2018,” Rommel R. Gutierrez, president of CAMPI and a first vice-president at Toyota Motor Philippines (TMP), said in a statement.

Mr. Gutierrez, however, expressed his confidence that the market will be able to adjust to the new excise taxes. TMP, which accounts for a 43.2% share of the automobile industry’s market volume, is already amending its prices on its company Web site.

The Wigo 1.0G A/T, the company’s cheapest offering, now bears a sticker price of P611,000 — P12,000 higher than its pre-TRAIN counterpart. On the other side of the spectrum, the Land Cruiser 200 4.5 Premium is now priced at P4.650 million —P350,000 more than its old price. The popular Vios, a market favorite since its introduction in the Philippines, saw a P12,000 increase in the price of its base model, while the top 1.5G A/T variant saw a rise of P28,000.

Mr. Sarne pointed out that these increases might not account for that much of a speedbump in the grand scheme of things.

“The robust sales of small cars will continue unabated. A maximum P12,000 price increase for these affordable vehicles won’t mean much to buyers, especially if they avail of a four- to five-year financing plan. That 2% bump in excise tax will hardly be felt in the final computation,” he wrote.

With more expensive models, Mr. Sarne noted that a car with a net selling price of P15 million will now be taxed P7.5 million, an amount that is lower than the taxed P8.252 million following the old tax plan.

“In the luxury car segment, the new excise tax actually gets lower the higher the manufacturer’s selling price is. Which means sales of premium sedans, luxury SUVs and exotic supercars should hold steady, if not grow even further,” he said.

What bears noting is the tax exemptive status that TRAIN is giving alternative-fuel powered vehicles and pickup trucks. Electric vehicles will be exempt from taxation, while hybrid cars are to be taxed at half the indicated rates.

“Pickups have enjoyed a more consumer-friendly reputation lately as lifestyle vehicles, and they are now being purchased by city dwellers who otherwise wouldn’t touch leaf-sprung trucks with a 10-foot pole,” Mr. Sarne wrote. “Imagine what tax exemption would do for their popularity.”

Meanwhile, tax exemption could be a huge incentive towards the promotion and adoption of electric and hybrid vehicles, paving the way for more environment-friendly options to appear in the market within the year. Manufacturers that have already dipped their hands in the production of green vehicles may soon introduce new lineups, and hybrids and EVs could be populating Metro Manila’s roads by the end of 2018.

A new market for alternative-fueled vehicles could provide the Philippine automotive industry enough forward momentum to offset any negative effect the TRAIN law could have towards the sales of conventional vehicles. Whether the new tax plan will become a speed bump, or the start of an even more prosperous future for the industry, only time can tell. — Bjorn Biel M. Beltran

In a new, challenging drive

The automotive industry last year had an aggressive growth, particularly in its last quarter, as consumers went into panic buying due to the anticipated implementation of the higher excise tax on vehicles. The boom in the local auto sales, with an observable increased of double digits in recent years, is expected to slow down as the new tax reform took effect this January.

Last Dec. 19, President Rodrigo R. Duterte signed into law the Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN). Under the new tax reform, personal income tax rates is reduced while higher excise levies on petroleum and vehicles, among others. TRAIN viewed as a step in the right direction as most of the revenues will be used for government’s spending on infrastructure development.

According to the Department of Finance (DoF), the new tax reform simplifies the excise tax on automobiles. Lower-priced cars continue to be taxed at lower rates while more expensive cars are taxed at higher rates. In this way, the new excise will raise revenue in a very progressive manner as the richer buyers tend to own more and expensive cars compared to those who earn less, the DoF noted in its Web site.

In particular, excise tax on vehicles sold P600,000 and below increases from 2% to 4%; 10% for vehicles priced over P600,000 to P1 million; 20% for between P1 million and P4 million; and 50% for vehicles sold more than P4 million.

To encourage cleaner transportation, electric vehicles are exempted from the excise tax, together with pickup trucks. Hybrid cars or vehicles that use a combination of internal combustion and electric power will be taxed at half rates.

“When we consider the TRAIN as a package, the increase in take home pay from the personal income tax reduction will be more than enough to offset the increase in prices resulting from adjustments in excise taxes. For example, those who will purchase a Vios will be able to save P16,122 despite the increases in taxes, and those who buy an Innova will save around P29,923 even if they buy a car with the new rates. For a Vios, this translates to only an additional P183 in monthly amortization assuming a standard loan term of five years,” the DoF explained.

In effect to the auto industry, some local brands have already increased and decreased the selling prices of their car models, while others stayed the same. Among the mainstream local brands: Honda Cars Philippines, Inc. (HCPI); Toyota Motor Philippines (TMP); and Toyota’s luxury division Lexus have updated their price figures, with price increase of most models as quite manageable.

Other brands have yet to release changes in their price scheme, claiming that they are still waiting for the Implementing Rules and Regulations (IRR) or basic guidelines on pricing their new cars, to be released by the government.

Mainstream car distributors are expecting a gradual decline on the car sales in the first quarter of the year, and flat growth rate at the end of the year. Despite this, Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) President Rommel Gutierrez said last December that they are still confident that the Philippine automotive industry will continue to be a major contributor to the Philippine economy. — Mark Louis F. Ferrolino

Standout cars of 2017

Like the previous years, 2017 was a good year for the automobile industry with a recorded 18. 4% increase in sales, according to a report by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA).

The report showed that 425,673 units were sold last year, surpassing the targeted 400,500 units, and in comparison with the recorded sales of 359,572 units in 2016. In December 2017 alone, it was noted that sales rose to 33.4%, with 45,494 units sold compared to 34,104 units sold in the same period in 2016.

The spike in sales was attributed to the imposition of excise tax on automobiles under the  Tax Reform for Acceleration and Inclusion (TRAIN) law, which started January of this year. While this might be a looming challenge for the industry, CAMPI officials said they remain confident that the market will be able to adjust to the new law. 

Meanwhile, here’s a round-up of 2017’s standout cars:

Honda Civic Type R

An eye-catcher at the 2017 Manila International Auto Show, Honda Civic Type R is reported as the first-ever Civic Type R model to be sold locally. More than its stunning sporty exterior, this vehicle is notable for having a 2.0-litre VTEC TURBO engine with a maximum power output of 310 PS at 6,500rpm, and peak torque of 400 Nm from 2,500rpm to 4,500rpm. Its Three-Mode Drive System namely: +R Mode, Sport Mode, and Comfort Mode enables the user to select through different characteristics that suit their driving conditions. These stellar features, matched with a comfortable interior cabin, make this vehicle a standout.

Mazda CX-5

The all-new Mazda CX-5 boasts of being equipped with G-Vectoring Control, a system known to enhance driving feel and improve passenger riding experience. Also notable is its Skyactiv technology, which is known to deliver high performance yet emits ultra-low NOx emission that complies with stringent Euro 6 standards. To match what is in the inside, the Mazda CX-5 is designed with the Kodo: Soul of Motion, a design language that catches the eye and moves the soul.

Mitsubishi Montero Sport

True to its claim of being “built to success,” this well-loved midsized SUV bagged awards including the Best 4WD SUV in the Car of the Year Awards and Best Mid-size SUV in the 2017 Auto Focus People’s Choice Awards. Dependable on both city driving and on rough terrain, Mitsubishi’s Montero Sport, specifically the GT variant, had a notable make over in 2017. Worthy to mention are its safety features including the forward Collision Mitigation System, Adaptive Cruise Control, Ultrasonic Misacceleration Mitigation System, and blind spot warning. These features coupled with the first-of-its-kind Euro-4 compliant 2.4L Clean Diesel engine with Mitsubishi Innovative Valve Electronic Control system, sleek exterior, and comfortable interior design, the new Montero Sport surely delivered a performance.

Morris Garage MG3

Catering to millennials, MG3 is more than its stylish, sporty exterior. This vehicle with features that passed European safety standards, comes with a 1.5-liter gasoline engine capable of 105hp at 6,000rpm and 135Nm at 4,500rpm. Moreover, it has become a choice for those looking for affordable yet fun, sporty, and trustworthy hatchback road buddy.

Nissan Juke

“Built to stand out,” as it claims, the Nissan Juke’s playful range of colors are a head-turner. But more than its exterior, this vehicle, which is a cross between a sports car and an SUV, has standout features including the world’s first I-CON System that gives the user the freedom to easily switch from various driving modes. With this iconic system matched with a powerful 1.6L engine, Nissan Juke becomes reliable partner on the road.

Suzuki Celerio

Suzuki Celerio, which caters tothe adventure-seekers, is one of Suzuki’s best-selling vehicles since 2016. Apart from being awarded with Best Fuel Rating under the Over-All Gasoline Category at Department of Energy’s Euro 4 Fuel Eco Run in 2016, Suzuki Celerio bagged the Best Value for Money award in the standard mini category at the Auto Focus People’s Choice Awards 2017. Celerio is notable for fuel-efficient engine and patented Total Effective Control Technology (TECT); generous cabin and luggage space; and for having a spacious leg room and higher head room for utmost comfort during trips. — Romsanne R. Ortiguero

Poll: 2017’s growth target in the bag

ECONOMISTS expect the country’s economic growth to have stayed robust and on target in 2017 on the back of higher household and government spending, albeit easing from 2016 as a widening trade deficit may have capped overall expansion.

A poll of 12 economists yielded a gross domestic product (GDP) growth estimate median of 6.7% for both the fourth quarter and full year 2017, slowing from the government’s 7.0% upgraded third-quarter estimate, but slightly faster than the 6.6% notched in 2016’s final three months. The median forecast also compares to 2016’s 6.9% growth that was the fastest in three years.

This puts the growth pace near the low end of the government’s 6.5%-7.5% target band for 2017. The Philippine Statistics Authority is scheduled to release the official GDP data tomorrow.

In a note last Friday, Moody’s Analytics gave a 6.7% fourth-quarter estimate, saying that domestic demand “likely remained the major driver of growth” as households continued to benefit from steady inflows of remittances from overseas Filipino workers as well as a “healthy labor market.”

Socioeconomic Planning Secretary Ernesto M. Pernia had said in the National Economic and Development Authority’s year-end press briefing last month that he expects growth in 2017 to be “at least 6.7%” and the fourth-quarter pace faster than that, with government spending, exports, consumer spending and improved agriculture output driving growth for the fourth quarter.

Poll: 2017’s growth target in the bag

Economists polled late last week by BusinessWorld shared Mr. Pernia’s optimism, even as some clarified that a widening trade deficit could have capped fourth-quarter and full-year economic expansion.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, estimated 6.7% economic growth for the quarter and full-year 2017: “[Fourth quarter] growth is based on robust growth from holiday domestic consumption and increasing public and private investment on infrastructure development,” he said.

For Mr. Asuncion, the supply side would see services “outdoing” industry and agriculture. “Agriculture might have given a boost to overall growth picture because of a favorable year for harvests in general. Manufacturing may have also been a huge driver for industry in [the fourth quarter].”

Emmanuel J. Lopez, chairman of the University of Santo Tomas Department of Economics, also gave a 6.7% estimate for the quarter and the whole of 2017, citing “increased demand brought about by holiday festivities” in the fourth quarter, “robust expenditures in infrastructure development” and the consistent growth of OFW remittances last year.

‘SIGNIFICANT OFFSET’
For ANZ Research economist Eugenia Fabon Victorino, Philippine economic growth “remains robust”, noting that “[a]lthough, momentum in industrial production has been easing, the rise in government spending should have provided a significant offset. Several infrastructure projects broke ground in the last quarter raising employment opportunities.”

Ling-Wei Chung, principal economist at IHS Markit, shared this assessment, saying: “With the government pledging an ambitious infrastructure program, the main support to GDP growth continues to come from government and investment spending.”

The government spent a total of about P2.494 trillion as of end-November last year, 10% more than the P2.266 trillion spent in 2016’s comparable 11 months.

Furthermore, Department of Budget and Management data showed infrastructure and capital outlays growing 44.8% in November — its fastest pace so far in 2017 — to P43.8 billion from P30.3 billion in 2016. That brought January-November disbursements on the same times to P486.5 billion, 14.2% up from P426.1 billion in 2016’s corresponding period.

“This factor, coupled with favorable liquidity conditions, buoyant domestic sentiment, and steady remittance inflows will render support to domestic demand,” Ms. Chung said.

KEY RISK
Some economists, however, cited the country’s worsening trade balance as a risk to economic growth.

Latest government trade data showed that the import growth rates of 13.1% and 18.5% in October and November, respectively, outpaced that of exports which grew 7.1% and 1.6% in those two months. These contributed to bringing the cumulative trade gap to $25.705 billion — a level not seen in decades.

“The expansion of the Philippine economy likely slowed to 6.4% last quarter from 6.9% [the government revised this slightly upward to 7.0% on Friday] in the third quarter of 2017 as the surge in imports and the slowdown in exports intensified the negative contribution of net trade to the country’s GDP,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

IHS Markit’s Ms. Chung noted that “with infrastructure spending boosting import growth, a widening trade deficit will likely weigh on net exports and provide some constraints to GDP growth in Q4 2017 and during the near term.”

‘NOT AT ALL CONCERNING’
For UnionBank’s Mr. Asuncion, however, the trade deficit is “not at all concerning,” describing it as a “consequence of an emerging shift toward more investments rather than mere domestic consumption-led economic growth.”

Angelo B. Taningco, economist at Security Bank Corp., put GDP growth at 6.5% in the fourth quarter and a 6.6% for the full year print, saying that in addition to the trade deficit, there are also “signs of slowdown in agricultural production amid adverse weather conditions such as tropical storms and typhoons during December…” as well as moderation in consumer spending due to higher inflation. — Ranier Olson R. Reusora

Central bank reviewing single borrower’s limit

By Melissa Luz T. Lopez
Senior Reporter

THE CENTRAL BANK is reviewing the single borrower’s limit (SBL) imposed on banks to provide leeway for infrastructure financing, an official said, which is seen to support the government’s massive spending program.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said monetary authorities are looking to relax borrower limits anew to accommodate bank lending for big-ticket projects, possibly similar to the special 25% cap for public-private partnership (PPP) projects.

“It’s under study,” Mr. Guinigundo said on the sidelines of the 1st Global Forum on Infrastructure Strategies last Thursday.

The SBL is intended to limit credit exposure to a single client to a maximum of 25% of a bank’s net worth. This is to minimize risks on the bank in the case of the borrower’s default.

The ceiling — which has been in place since 2004 — covers loans, as well as securities underwritten by universal banks and investment houses unsold after 90 days.

In 2010, the central bank provided a separate 25% credit limit for PPP projects, which was meant to encourage banks to fund infrastructure goals of the administration then of former president Benigno S.C. Aqunio III. This SBL lapsed in December 2016.

“Now, the BSP is consulting with the banks the feasibility of carving out again the SBL as long as this is going to fund infrastructure,” Mr. Guinigundo said. “Infrastructure involves big-ticket items. P8 trillion [planned infrastructure spending up to 2022] — that’s about 2.5 times of your national budget.”

He clarified that the new lending cap will come “with certain modifications” but refused to provide details as discussions are ongoing.

“That’s the priority of the government. Ayaw nila masyado ng (The current government is not too keen on) PPP because of the length of time that it consumes before it can even take off the ground,” the BSP official added.

The Duterte administration is looking to spend P8.44 trillion from 2016 to 2022 on infrastructure projects, as it veered away from the PPP model in favor of a “hybrid” mode where the government takes on the construction phase. Several projects in the pipeline — including railways, airports, and toll roads — will then turned over to the private sector for operation and maintenance.

Economic managers said the aggressive public spending will be supported by a mix of government debt, foreign aid and additional revenues expected from up to five packages of the comprehensive tax reform program.

Massive infrastructure spending agenda is expected to propel economic growth to average 7-8% annually by 2022, while addressing connectivity and logistics bottlenecks in order to improve the ease of doing business in the Philippines.

Corporate bonds this year expected to hover around 2017’s record level

By Krista A. M. Montealegre
National Correspondent

THE Philippine Dealing and Exchange Corp. (PDEx) expects new corporate bond listings to match last year’s record level.

The volume of fresh corporate debt listed in 2017 totaled P207.43 billion, the highest level of new corporate bond listings since the public market opened in 2008 and surpassing the level of new listings in 2016 by 23%, according to data from the PDS Group.

“Hopefully, we can match last year’s level,” PDS President and CEO Cesar B. Crisol said in an interview, noting that there are six applications in the pipeline.

Demand for these securities will be driven by robust liquidity in the financial market, Mr. Crisol added.

First Metro Investment Corp. sees corporate bond floats to hit P212 billion this year, buoyed by the positive outlook for the domestic economy.

SM Prime Holdings, Inc. announced last week that it is raising up to P20 billion from the sale of long-term bonds to retail investors — the third tranche of its P60-billion shelf registration of fixed rate bonds approved by the Securities and Exchange Commission in 2016.

“Maliit na lang ang balance ng shelf registration because they issued more last year. We hope to see more applications for shelf registration,” Mr. Crisol said.

Companies can use the shelf registration program to raise funds as they are needed or when market conditions become favorable to them.

“The capital market is very active on the debt side and on the equity side,” Virgilio O. Chua, first vice-president and investment banking group head at China Banking Corp., said in a separate interview.

“There are a lot of issues that were postponed last year. Hopefully, we’ll see them come to fruition this year.”

Two of the country’s biggest banks — Metropolitan Bank & Trust Co. and Bank of the Philippine Islands — are leading the way in raising from capital through the Philippine stock market, with plans to raise as much as P110 billion from the sale of shares to existing investors.

“The increase in economic activity obviously requires funding and that’s where the bank comes in,” Mr. Chua said.

Proposed investment treaty terms leave India’s foreign partners cold

NEW DELHI — Having cancelled investment treaties with about 50 foreign governments last year, India is struggling to convince some to accept new terms that make it harder to seek international arbitration for disputes, sources familiar with the talks said.

From New Delhi’s perspective those treaties, mainly struck in the 1990s when it was desperate for foreign capital, left it too exposed to potential claims awarded by international arbitrators.

To reduce that exposure, India has drafted a new model agreement that legal advisors say is similar to those used by other big emerging market economies like Brazil and Indonesia, but some of its foreign partners are balking at the more restrictive approach.

“India is getting nowhere with the negotiations,” said one of the sources, who is aware of the meetings with government officials over the past 10 months, but does not want to be named as the discussions are private.

Negotiators from countries including Australia, Iran and the European Union have told the Indian side that investors are waiting to come in but the new treaty terms give too little protection, the source said.

Foremost among their concerns are a requirement for investors to fight any case in the Indian courts for at least five years before going for international arbitration, and other provisions narrowing the scope for companies to make claims, the source said.

The new model treaty also has no provision for investors to bring claims against India for any tax-related matters and for disputes arising due to actions taken by local governments.

Currently, India is entangled in more than 20 international arbitration cases, and could end up paying billions of dollars in damages if it loses.

Companies like Vodafone Group, Cairn Energy and Deutsche Telekom have initiated arbitration proceedings against India seeking to protect their investments against retrospective tax claims and cancellation of contracts.

Covered by a bilateral trade and investment agreement between New Delhi and Tokyo, Japanese automaker Nissan is the latest company to sue India, claiming damages of over $770 million in unpaid tax incentives.

While several countries limit the type of tax-related claims that can be made, lawyers say India’s step to omit all tax matters goes too far and could expose investors to sudden changes in tax rules or retrospective claims.

NEGOTIATING POSITION
These days, India appears to be in a far stronger negotiating position than it was during the 1991 balance of payments crisis.

Prime Minister Narendra Modi has a strong mandate and there is more confidence in the ability of his pro-business government to get the under-achieving economy moving than there has been in any of its predecessors.

Since Modi came to power in 2014, annual foreign direct investment flows into India have doubled to $46 billion in 2016 from $22 billion in 2013. But the rate of growth in inflows is slowing, and the amount is lower than the $59 billion that a United Nations report says Brazil received in 2016.

A European Commission official termed India’s unilateral decision to terminate treaties as “unfortunate” saying it discriminates between existing investors, who will continue to be protected by the old treaties for a few years after termination, and new ones who will have fewer safeguards.

The Commission is exploring ways to re-establish protection for European investors and resume negotiations on a free trade agreement with India that will include investment, the source said.

Canada has been in talks with India since 2004 to sign its first treaty, but there has been little progress and its trade minister told Reuters in November that Canadian investors are holding back until there is one in place.

“India needs further investments and Canada is willing, but we need a framework. What investors want is to have certainty, stability and predictability,” Francois-Philippe Champagne said in Mumbai during his visit to India as part of a trade mission.

While the sources told Reuters that Australian and Iranian officials had raised concerns in private meetings with Indian counterparts, neither the Australian High Commission in New Delhi or Iran’s ministry of industry, mines and trade responded to emailed requests for comment.

A spokesman at India’s ministry of external affairs also failed to respond to an e-mail seeking comment.

Meantime, some countries, especially those that receive more investment from India than they send, are more open to signing, said the first source. Israel, for instance, does not oppose some of the provisions and the two nations could soon sign an accord, Business Standard, an Indian newspaper, reported on Wednesday last week.

And while India remains a capital deficient country, some of its biggest companies have made major investments overseas and would be reassured if there were bilateral treaties in place to protect their interests.

For now, the draft model treaty is a starting point for negotiations, the second source said, but India is in a good position to press for better terms.

“India is finally flexing its muscles,” the spokesman said. — Reuters

T-bonds to fetch higher yields

TREASURY BONDS (T-bonds) on offer Tuesday are likely to fetch higher yields after 10-year US Treasury yields rose to their highest levels in three years as the US government shutdown spooked investors.

The Bureau of the Treasury plans to raise as much as P20 billion during Tuesday’s auction of fresh three-year T-bonds set to mature on Jan. 25, 2021.

“I think yields of three-year bonds will move higher due to increased yields of the US Treasuries,” a trader said over the phone on Friday.

Last week, yields of the 10-year US Treasuries soared to as much as 2.6407%, its highest level since September 2014’s 2.6256%.

Bloomberg reported yields of US debt papers were rising on the back of market expectations on the Federal Reserve’s interest rate hikes this year as well as increased borrowing to finance the widening budget deficit.

Meanwhile, another trader said the US government shutdown will provide some headwinds.

“That’s the only black swan for now. But we’re seeing demand on the short-end so [the government] will be able to sell the P20-billion target given the higher US Treasury yields,” the second trader added.

On Saturday, the US government shut down after a standoff between Republican and Democrat lawmakers over a short-term spending bill. Democrats demanded spending legislation include protections for young undocumented immigrants, while Republicans refused to negotiate on immigration.

A second trader expects the fresh papers to rise 4% to 4.25%, while the first trader gave a slightly higher projection of 4.25% to 4.325%.

Meanwhile, the first trader expects the demand to be tepid, saying the new bond issuances are less attractive compared with the old ones.

“I’m expecting just the right demand because it will be short tenor but because it’s a new issue, [the demand will be tempered]. They prefer the old issue,” he said. — Karl Angelo N. Vidal

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