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‘Thirtyfold’ virtual office industry growth seen

WORKSPACE PROVIDER Regus Philippines said it expects the virtual office industry growth this year to be driven by millennials’ penchant for flexible work arrangements.

Regus Philippines country manager Lars Wittig said: “We expect the industry to grow about thirtyfold minimum.”

“Because today, out of the commercial office space, our industry is only occupying 1-2%,” he said in an interview last Friday.

That outlook is anchored on the Philippines’ having a big part of its population composed of millennials, a demographic ranging from those born between 1980 and 1995.

“What has been driving this growth is the way people want to work. In the Philippines, the population is so young, millennials work whenever and wherever they like. Millennials don’t want to be measured by a timesheet,” Mr. Wittig said.

“Employers want to attract and retain millennials. That they cannot do if they do not embrace flexible working.”

Metro Manila’s worsening traffic is also a factor in the growing popularity of flexible working, Mr. Wittig said.

“Also forced by traffic, infrastructure, even the Department of Labor [and Employment] has encouraged that people work from other places other than the traditional workplace.”

Regus Philippines currently has 5,500 workstations, and is opening within the first quarter a center at the GT Tower in Makati City, its 25th location in the Philippines. The center will occupy an entire floor of the building and will have “close to 200 work stations,” said Mr. Wittig.

Regus said last month that in a study it conducted covering 200 respondents in the Philippines, 57% said that they work remotely, outside of their company’s main offices, for half the week or more.

A third of those surveyed said they work mostly from home, and 50% said they work remotely “in order to remain productive while traveling to and from meetings within the same city or in other cities.”

Mr. Wittig remains optimistic given the size of the Philippines when compared to the extent by which the company has built its network in geographically smaller countries.

“In a small country like Holland [the Netherlands], they have over 100 locations, a small town [city] like Copenhagen, they have over 20 locations, so if you connect the dots, I don’t see the limit.” — P.P.C. Marcelo

Nation at a Glance — (01/09/18)

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

A promising 2018 with VAT TRAIN

New Year, perhaps, is the most celebrated occasion around the globe. People stay awake to greet midnight, most often, with fireworks and loud noises at the stroke of 12. For Filipinos, families gather to celebrate a midnight meal known as Media Noche. It is also a popular practice to open all the doors and windows to let in good luck, make noise to drive away evil spirits, put 12 round fruits on the table and wear clothes with polka dots that symbolize money.

Save perhaps for birthdays and Christmas, no other occasion in the year gets as much attention as New Year. It is the time for people to reflect, look back and assess how their lives have gone and resolve to improve. New Year, therefore, symbolizes new beginnings… new hopes.

In 2018, as Republic Act (RA) 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN), comes to life, Filipinos are hopeful and optimistic that the year will bring more food to the table and bountiful and prosperous lives to many. While TRAIN was received by our kababayans with much optimism and enthusiasm, there are also many who expressed anxiety that it will bring more hardship because of the higher prices of commodities and fuel resulting from increases in excise taxes.

Tax reform will always have trade-offs. An interesting one is the removal of VAT zero-rating on the sale of goods to PEZA-registered companies upon implementation of the Enhanced VAT Refund System.

In a veto message, the President stated that VAT zero-rating should only be limited to direct exporters. Thus, the new provision of zero-rating of sales of goods and services to registered enterprises within separate custom territories and tourism enterprise zones was vetoed by the President.

The issue, however, is whether the vetoed provision immediately removed the existing VAT zero-rating enjoyed by PEZA-registered enterprises in their purchase of goods and services. We note that even without the vetoed provisions such entitlement for zero-rated purchases has been interpreted as included in the PEZA law and consistent with the Cross-Border Doctrine of taxation. In Revenue Regulations 4-2007, the BIR clarified that the term “effectively zero-rated sales” of goods and services refers to the local sale of goods and services by a VAT-registered person to a person or entity who was granted an indirect tax exemption under special laws or international agreement. This provision of the regulations has been the basis for the zero-rating of purchases by PEZA-registered enterprises.

Assuming that the zero-rating of purchases by PEZA registered enterprises is retained based on the above provisions of the law, the VAT treatment of said transactions will still face changes under the amendments introduced by the TRAIN. The amendments state that upon the successful establishment and implementation of the Enhanced VAT Refund System, those considered export sales of goods under other special laws will no longer be considered export sales subject to zero percent. In this case, the sale of goods to PEZA–registered enterprises will necessarily be subject to 12% VAT.

We note that the provision covering zero-rated sales of services to persons exempted under special laws was not included in the list of zero-rated services which will eventually be subject to 12% VAT upon the implementation of the Enhanced VAT Refund System.

This particular change in the VAT rules has raised many concerns among PEZA-registered enterprises. The biggest apprehension of PEZA locators is the undesirable impact it will create in the global competitiveness of PEZA-registered enterprises once the VAT zero-rating is removed. PEZA-registered enterprises enjoying a 5% preferential income tax rate, in lieu of all national and local taxes, will now be constrained to treat the passed-on 12% VAT as part of their costs. This will certainly affect the prices of the manufactured goods and services of PEZA entities. Thus, the alternative option to mitigate the impact of this new law is for PEZA- registered enterprises to import goods (e.g raw materials) which are duty-free and tax-exempt. This, however, will slow down the businesses of local suppliers of goods to PEZA entities.

Some PEZA-registered entities are not expecting to really benefit from the Enhanced VAT Refund System introduced by the TRAIN. After the ITH period and during the 5% preferential tax regime, the sale of goods and services by PEZA-registered enterprises is considered VAT-exempt. Since VAT refunds are allowed only if the passed-on 12% VAT arose from zero-rated or effectively zero-rated sales, PEZA-registered entities can no longer claim a refund of the passed-on 12% VAT. Thus, a spike in the pricing of goods and services by PEZA-registered entities is expected.

While the Enhanced VAT Refund System is a commendable effort of the legislators, effective implementation of the law is necessary to make it a success. For years, taxpayers have been frustrated in the VAT refund process which takes several years to be resolved. When the Enhanced VAT Refund System is in force, refunds of creditable input tax shall now be granted within 90 days from the filing of the VAT refund application with the Bureau of Internal Revenue (BIR).

Under this enhanced system, all application filed from Jan. 1 shall be processed and must be decided within 90 days from the filing of the VAT refund application. Also, all pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019. This provision in the TRAIN is a welcome relief for taxpayers who have lost confidence in the VAT refund process.

Another welcome amendment under the Enhanced VAT Refund System is the automatic annual appropriation. Under the enhanced system, 5% of the total VAT collection of the BIR from the immediately preceding year shall be treated as a special account in the General Fund or as trust receipts for the purpose of funding claims for VAT refunds. With this automatic appropriation, it is hoped that taxpayers need not wait for years to receive the cash refunds they are entitled to. Also, the BIR is required to submit to the Congressional Oversight Committee on the Comprehensive Tax Reform Program, a quarterly report of all pending claims for refund and unused funds. This action point will inevitably remind the BIR of its mandate to decide on the claim for refund within the 90-day period.

While there are some trade-offs in the TRAIN, people should be reminded that this much-celebrated tax reform was geared to uplift the lives of Filipino people, particularly the poor. Now that the TRAIN is in full gear, implementing agencies such as BIR are surely busy drafting implementing rules and regulations to guide taxpayers and regulators. As the real impact of the TRAIN is yet to be felt, the Filipino people can only wait and hope that 2018 will fulfill TRAIN’s promise.

Farrah Andres-Neagoe is a manager 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.

Filipino singing duo wins YouTube’s first talent competition

AFilipino singing duo has won in Best Cover Ever, the first talent competition of video streaming platform YouTube.

Lesha Litonjua and Leo Malli (or Lesha x ELM) were chosen by American dance‑rock band DNCE as the artists with the best rendition of their popular song “Toothbrush.”

Best Cover Ever is a series where music artists such as Demi Lovato, Katy Perry, Jason Derulo, Charlie Puth, Keith Urban, Backstreet Boys, Flo Rida, Nicky Jam, DNCE, and Bebe Rexha choose artists with the best cover of their original songs.

As a prize, the two, who were the only Asians who made it to the contest, got to perform with the Joe Jonas‑led band in a video that will premier in the platform.

The competition, which was hosted by Grammy Award‑winning artist Ludacris and produced by Ryan Seacrest Productions and Endemol Shine North America, aims to give emerging artists worldwide a chance for international fame.

 

Finding harmony

The duo found the perfect harmony in college.

Litonjua, a marketing major, has a keen interest in singing, song‑writing, and music production while Malli, who studies music, ventures into rapping and production.

With their knowledge about electronic music production, the two in 2016 decided to collaborate and create their unique music, which they would post on YouTube later on.

The duo since then has also been performing at premier night clubs in Manila and opening acts for international artists who are having concerts in the country.

El Niño, typhoon damage crimp farm output

THE DEVASTATING effects of typhoons and prolonged El Niño pulled down the agriculture, forestry, and fishing sector in 2016.

Data from the Philippine Statistics Authority (PSA) National Accounts showed that sectoral output, as measured by gross value added, contracted 1.3% to P715.51 billion in 2016 (at constant 2000 prices) from P719.74 billion the previous year. The negative turnout was a reversal of the growth (albeit flat) in 2015 at 0.1% and snapped the sector’s five years of consecutive growth.

The agriculture subsector, accounting for 82.7% of the total, contracted 0.6% to P587.56 billion. The forestry subsector also declined, decreasing by 10.1% to P3.62 billion. For its part, the fishery subsector shrank 4.3% to P122.96 billion.

In a separate report by the PSA entitled “Performance of Philippine Agriculture, October-December 2016,” agricultural output declined by 1.4% for the year, way below the government’s 3-5% growth target for the year. The report attributed the decline to prolonged dry spell and damage caused by typhoons during the year.

“The devastating effects of typhoons Karen (internationally known as Sarika) and Lawin (Haima) pulled down production in the crops and fisheries subsectors,” the PSA said in its report, adding that these drops offset increases in livestock and poultry.

BW FILE PHOTO

Crop production, which accounted for around half of total value of farm output in 2016, contracted 3.3%, higher than the 2.0% fall recorded in 2015.

Production of palay (unmilled rice) — which contributed about a fourth to total value of farm output — decreased by 2.9% to 17.63 million metric tons (MT), against a 17.91 million MT full-year projection made in November that year.

Corn, which contributed 4% to total value for the entire year, inched down 4% to 7.22 million MT for the entire 2016.

Meanwhile, livestock production, which accounted for 17.9% of the country’s total farm output value, increased by 4.6% in value terms, “[e]xcept for goat, all components of the subsector registered output increments,” the PSA report read.

Fisheries yields, which contributed 13.6% for the output total, decreased the most, posting a 4.2% downturn last year.

The draft Philippine Development Plan 2017-2022 released last January showed that the government hopes to prod agriculture growth to 2.5-3.5% annually from 2017 to 2022, after 2013-2015’s one-percent average. — Lourdes O. Pilar

Oil, natural gas make up for nickel plunge

THE MINING and quarrying sector managed to record a modest growth last year. This, despite a decline in metallic mineral production value as the industry reeled from low global metal prices, mine suspensions and unfavorable weather.

Data from the Philippine Statistics Authority showed that the sector’s gross value added rose by 3.2% to P83.11 billion (in constant 2000 prices) in 2016, a reversal from the 1.5% contraction in 2015.

Nickel, the country’s top metal product with around a quarter share of the sector’s total output, plunged by 22.8% to P20.94 billion. The production of chromium also declined 2.9% to P46 million.

The increases seen in other subsectors, however, more than made up for the downtrend in nickel production.

Mining of crude oil, natural gas and condensate, with a 26.3% share of the sector’s output, grew 10.9% to P21.84 billion, followed by “other” nonmetallic ores — comprising one-fifth of the total — which increased production by a whopping 45.4% to P16.76 billion.

BW FILE PHOTO

Gold mining was also in positive territory, with a 9% growth to P5.51 billion in 2016, albeit slower than the 12% increase that it posted in the previous year. Upticks were also observed in “other” metallic mining (11%), copper mining (6.4%), and stone quarrying, clay, and sandpits (4.3%).

According to the Mines and Geosciences Bureau (MGB), the metal mineral production of the country’s 41 mines dropped by nearly a tenth in 2016 due to “[p]oor base metal price, a string of mine suspensions… and non-operation due to unfavorable conditions.”

During the year, world prices of gold and silver went up by 17% and 19% respectively while those of copper and nickel declined by 3% and 11%, respectively.

Furthermore, nickel direct shipping ore production volume and value went down by 23% and 41% to 24,652,913 dry metric tons worth P21.77 billion in 2016 from 32,076,948 dry metric tons worth P36.60 billion 2015.

Increases in gold and silver production, MGB noted, were not able to make up for declines in output of copper and nickel.

In its report, the agency likewise said that four of the country’s 28 nickel mines had voluntarily stopped operations while seven others were suspended way before the government environmental audit that began in July 2016. – Ranier Olson R. Reusora

 

Spend tax windfall well, IMF says

By Melissa Luz T. Lopez
Senior Reporter

THE IMPLEMENTATION of the tax reform law bodes well for boosting investor confidence in the Philippines, the International Monetary Fund (IMF) said, noting the need for “well-targeted” spending of fresh revenues generated from higher excise taxes.

IMF country representative Yongzheng Yang said the newly signed Tax Reform for Acceleration and Inclusion (TRAIN) law which took effect this month would provide ample support to the spending needs of the Duterte administration despite some changes to the original proposal from the Executive.

The additional revenue stream generated from the higher excise taxes on select goods would be a net plus for the economy, despite some price pressures which will emerge from adopting the tax reforms.

“We very much welcome the TRAIN Law, which is the first of a series of planned tax reform packages initiated by the government,” Mr. Yang said in an e-mail interview with BusinessWorld.

“Revenue generated by this package, estimated at P90 billion, will help boost resources for the government’s infrastructure and social programs, which will contribute to reducing supply bottlenecks and alleviating poverty.”

The measure signed as Republic Act 10963 reduces personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes.

Foregone revenues will be offset by the removal of some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not listed on the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.

Mr. Yang previously described the TRAIN program and the government’s infrastructure spending plans as “rightfully aggressive” in seeking reforms that would address critical gaps in the Philippines.

The multilateral lender also dubbed tax reform as a crucial element in maintaining the country’s fiscal balance during its annual health check of the Philippine economy.

The IMF has remained upbeat about the prospects of the Philippines as it expects a 6.7% growth in gross domestic product this year, faster than the 6.6% estimate for 2017.

TARGETED
The government should likewise ensure that additional revenues collected from the TRAIN bill — which are pegged at P82.3 billion this year — will go to productive uses, the IMF said.

“Well-targeted spending with the increased revenue — focusing on building critical infrastructure and helping the most vulnerable segments of society — will amplify the poverty-reducing impact of the tax reforms,” Mr. Yang added.

The Finance department said the 10 million poorest families in the country will receive cash transfers worth P200 a month to help them cope with rising commodity prices due to the TRAIN, as they will not get a bigger take-home pay despite the adjustment in income tax brackets.

Those social safety nets will eat up 30% of the additional revenues generated from the tax law, while the remainder will be spent on infrastructure, the Department of Finance (DoF) earlier said.

The Duterte government plans to spend P1.1 trillion on infrastructure this year, forming part of a massive P8.4-trillion program which runs until 2022.

NEXT PACKAGE
However, attention shifts back to the DoF and Congress as succeeding tranches of the tax reform package are proposed, which include the lowering of corporate income taxes against possible removal of tax breaks and other incentives, among others.

“The tax reform is particularly important in strengthening the government’s reform credentials and sends a positive signal to investors,” Mr. Yang added, as he acknowledged that the passage of the TRAIN law will “boost confidence” toward the Philippines.

Critics of the tax reform have flagged that the higher duties imposed on fuel and other commodities will push the prices of basic goods higher. However, central bank officials have assured that the inflationary impact will be “transitory” and would not overshoot the 2-4% target range set for the year.

In a report released last Thursday, analysts at Nomura Global Research dubbed the TRAIN law as “highly growth-positive,” as they reiterate their 2018 growth forecast of 6.9% for the Philippine economy.

“We emphasize that this major milestone in tax reforms should be viewed unambiguously in a positive light, providing a key catalyst for local financial markets and reinforcing further our bullish outlook on the Philippine economy,” the economists said in a Jan. 4 report.

Oil companies declare inventories before TRAIN

By Victor V. Saulon
Sub-Editor

OIL COMPANIES have begun filing notarized reports declaring their inventories as of end-December 2017 ahead of the implementation of a higher excise tax on petroleum products, the Department of Energy (DoE) said over the weekend.

The move was in compliance with the agency’s directive that fuel retailers submit by Jan. 5 an inventory report of their petroleum products to ensure that the new taxes will be applied only on new supply.

As of Friday, oil companies had committed to submit their notarized report, which the DoE wanted to be on a “per depot and per product basis.”

“We will comply with [the DoE’s] directives to oil companies that the implementation of the excise tax under TRAIN (Tax Reform for Acceleration and Inclusion) shall not be applied unless 31 December 2017 inventory of finished products are fully exhausted,” said Cesar C. Abaricia, Pilipinas Shell Petroleum Corp. media relations manager.

“Hence, our retail stations will apply the new excise taxes on fuels only when their old inventories are fully consumed,” he added.

Undersecretary Felix William B. Fuentebella did not respond to BusinessWorld’s query about oil companies’ compliance rate.

Last week, the DoE said it would be premature for oil companies to be raising prices after it set a minimum 15-day requirement under a department circular.

Mr. Fuentebella said the full impact of the new excise taxes along with the value-added tax on previously untaxed petroleum products should be felt starting in March or April.

Oil companies last Tuesday raised the prices of gasoline, diesel and kerosene by P0.20, P0.65 and P0.75 per liter to reflect the movement of prices in the international market. They have not factored in price increases brought about by TRAIN.

Aside from the inventory report, Energy Secretary Alfonso G. Cusi, through the department’s oil industry management bureau, directed oil companies to submit a daily summary of withdrawal starting on Jan. 1, 2018 until the depletion of the declared end-2017 inventory.

Retailers are also required to post in a conspicuous area, for transparency, notice of the new excise tax implementation under the TRAIN in a signage measuring 1 meter by 1 meter in size.

“We remind the consumers and the oil industry participants that violators face the sanctions under the law,” Mr. Cusi said in a missive dated Jan. 4.

Corporate tax cut is DoF’s next push as sessions resume

CONGRESS’ resumption of sessions on Monday next will likely be greeted with a big push from Malacañang: the second of a series of reforms meant to overhaul the Philippines’ two-decades old tax law.

The Department of Finance gave Jan. 15 as the date it set for the submission of package two of the Comprehensive Tax Reform Program (CTRP).

Nomura Global Research, in its Jan. 4 research note, bets that tranche will touch corporate taxes. “In our view the next package likely to be tabled this year is on corporate income tax cuts, which are again complemented by revenue-raising measures, particularly the rationalization of fiscal incentives,” Nomura analysts wrote.

“We expect these will also continue to boost the economic outlook if passed, helping competitiveness and improving prospects of FDI (foreign direct investments) further.”

A cut in corporate income taxes will be a follow-through to Republic Act 10963, which trimmed personal income taxes while raising the levy on cars, oil, tobacco, and coal among others. That law, signed by President Rodrigo R. Duterte just last December, took effect on Jan. 1.

The President on Dec. 19 ordered the DoF to “immediately submit to Congress” the second package as he signed the first set of tax reforms.

“We are going to submit to Congress the package two of the CTRP in January 2018,” Finance Secretary Carlos G. Dominguez III said after a Dec. 22, 2017 Development Budget Coordination Council briefing.

Asked for a date, Mr. Dominguez said: “on January 15.”

Congress is on a month-long break that ends on Jan. 14, but Senate President Aquilino L. Pimentel III over the weekend already outlined which bills are tabled for discussion when lawmakers return to work on Monday next — changing the 1987 Constitution for federalism, the Bangsamoro Basic Law and death penalty. (See related story on S1/10)

Also counted among the Senate’s legislative priorities this year are those pertaining to “endo (end of contract), occupational safety, BSP (Bangko Sentral ng Pilipinas) charter, anti-terror, and SEC (Securities and Exchange Commission) reforms,” Mr. Pimentel said in a mobile phone reply on Sunday.

Under the Constitution, all tax measures must originate from the House of Representatives. The committee on ways and means has yet to reply to queries on how soon the second of five packages under the CTRP will be dealt with assuming that it is filed on Jan. 15. House majority leader Rodolfo C. Farinas said House lawmakers will take the cue from the Finance department, saying in a mobile phone reply that “we have not even received it [the proposed legislation.]”

Although the Finance department is still finalizing the draft’s wording, the agency said earlier that it wants to cut the corporate income tax rate to 25%, from 30% currently, in order to encourage firms to spend more and to improve the country’s attractiveness to foreign investors.

The proposal would also rationalize some fiscal incentives in order to plug revenue leaks. Mr. Dominguez said earlier that the retention of tax holidays will be performance-based.

He said in a statement on Sunday that the next tax package will likely be “revenue-neutral.”

Finance Undersecretary Karl Kendrick T. Chua had said in September last year that the package will involve foregoing P500 billion as a result of lower corporate taxes, but will be compensated by the same amount from the withdrawal of tax perks.

Business groups earlier said that the second package will be closely watched to see whether the corporate income taxes would be competitive when compared with the rest of Southeast Asia and which fiscal incentives would be retained. — with reports from E. J. C. Tubayan, M. N. R. Dela Cruz and A.L. Balinbin

SEC warns public vs investing in Alifelong

THE Securities and Exchange Commission (SEC) has advised the public against investing in Alifelong Marketing and Services, Inc., saying it has not secured the necessary license from the commission to sell securities or solicit investments from the public.

In an advisory posted on its Web site, the SEC’s Enforcement and Investor Protection Department noted that while Alifelong is a duly registered corporation with the commission, it has not been authorized to be an investment vehicle.

“The public is hereby informed that (Alifelong), despite having been registered with the Commission as a corporation, is not authorized to solicit investments from the public as it has not secured the necessary license or permit from the Commission as required under Sections 8 and 12 of the Securities Regulation Code (SRC),” the SEC said in the advisory.

Section 12 of the SRC states that all “securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in the main office of the Commission, of a sworn registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe.”

The country’s corporate regulator described Alifelong as an advertising or marketing company with clients based abroad. Members of the company are promised returns on their P1,500 investment by referring other people into the firm or buying so-called clicking accounts. Investments come in the form of bitcoin or money deposits in different bank accounts.

Salesmen, brokers, dealers, or agents of the company may be penalized and held criminally liable for soliciting investments from the public as per the SRC, amounting to P5 million or up to 21 years of imprisonment.

Alifelong supposedly allows members to earn in six ways, first with a sign-up reward amounting to P300 upon registration. Once a member is able to sponsor another person into the system, he or she is entitled to a P100-reward for sponsoring an affiliate. Members can recruit an unlimited number of people into the system.

Another way to earn is called the “YouClick Programme,” where members can choose to join by availing of an activation code worth P1,500. After this, the member is guaranteed a return of up to P2,500 should they reach the quota of 5,000 clicks per day for a total of five business days. If a member maxes out the 5,000 clicks, they can avail of another activation code worth the same amount. Each member is allowed up to 15 YouClick account activation codes.

The match sales reward, meanwhile, could churn out P4,500 in earnings for each member, where “the member will earn P150 for every match in the binary structure.” Each account is allowed 30 matches per day.

For every person recruited on the first level, a member can then earn a sponsorship level reward of P40, and another P10 for the second up to the 10th level of the binary structure. A leveling bonus worth P400 will likewise be given for every match in each level down to the 12th level of the binary structure.

“The public is hereby advised to exercise caution before investing in these kinds of activities and to take the necessary precaution in dealing with Alifelong or its representatives,” the SEC said. — Arra B. Francia

Ten-year bonds on offer may fetch higher rates

TREASURY BONDS (T-bonds) on offer on Tuesday are likely to fetch higher yields as market players expect the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) to hike interest rates this year.

The Bureau of the Treasury plans to raise as much as P20 billion at Tuesday’s auction of fresh 10-year T-bonds set to mature on Jan. 11, 2028.

Traders interviewed last week said they expect yields on the securities to go up by “at least 10 basis points.”

“So far, it should be higher yields. We’re looking at least 10 basis points,” a trader said over the phone on Friday.

“Right now, we’re expecting the Fed to hike their interest rates thrice for the year,” the trader noted.

Another trader said the bond’s coupon rate could land between 5.125% and 5.25%.

At the secondary market last Friday, the 10-year bonds closed with a yield of 5.7946%.

The government last offered 10-year T-bonds on Nov. 7, with the award of the reissued papers reaching just P10.21 billion and fetching a 4.915% average rate. This was higher than the 4.647% rate fetched when the bonds were offered last Sept. 19.

At the December meeting of the Federal Open Market Committee, almost all policy makers agreed to raise the benchmark interest rate to 1.5% by 25 basis points.

“Most participants reiterated their support for continuing a gradual approach to raising the target range,” minutes from the Dec. 12-13 meeting released last week read.

At home, the first trader is said the BSP is also expected to raise its interest rates twice this year.

“BSP[‘s intention to raise its rates is] not yet clear,” the second trader however noted, adding that market players are looking at the inflationary effects of the domestic tax overhaul, as well as the upbeat performance of the peso and the local bourse.

Demand for the 10-year debt papers on offer tomorrow will be “lukewarm,” a trader said.

“It’s a new issue. Usually they don’t do well since liquidity is not yet established. I’m expecting the appetite will only be lukewarm. [I’m expecting] not that much demand,” the second trader said.

“Market players are defensive, so we might see lower or matched volume,” the first trader said.

The Treasury said it plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period.

The total amount that the government intends to borrow from the local market is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product.

The government targets a P888.23 billion gross borrowing plan this year, 22.05% higher than last year.

Of this amount, P176.27 will be from external financing while P711.96 will be sourced locally. — Karl Angelo N. Vidal

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