By Chino S. Leyco
The Department of Finance (DOF) is hopeful that Standard & Poor’s (S&P) recent upgrade of the Philippines’ credit rating would convince lawmakers to pass the bill that aims to reform the corporate income tax (CIT) system as well as the rest of the proposed Comprehensive Tax Reform Program (CTRP) packages.
Finance Secretary Carlos G. Dominguez III (Bloomberg photo)
In a statement, Finance Secretary Carlos G. Dominguez III said that considering the passage of the first law overhauling personal taxation was among the top factors cited by the debt watcher in assigning the country's highest investment grade ever, the lawmakers may now give weight on the importance of the tax reforms.
Dominguez pointed out that the congressional approval of the first CTRP package – the Tax Reform for Acceleration and Inclusion (TRAIN) Law – was cited by S&P as among the key strengths that led it to raise the Philippines’ long-term sovereign credit rating from BBB to BBB+ with a "stable" outlook, which is just a step away from an ‘A’ rating that is accorded only to the world's most stable economies.
S&P also said in its assessment report that the passage of the rest of the CTRP packages could lead to another credit rating upgrade, prompting Dominguez to say that President Duterte's economic team would work on possibly getting a higher "A" rating in two years.
“I’m sure that the Senate and the House, the Senate in particular, can see the benefits of what they did (with TRAIN). They are the ones who enabled this credit upgrading by passing the bill,” Dominguez said during a recent press briefing.
Dominguez said he hopes lawmakers would also acknowledge the tangible benefits of a credit rating upgrade for the country, which, as National Treasurer Rosalia de Leon had pointed out, would, among others, save the government roughly P3 billion in interest payments on its debt securities issued earlier this year – an amount that the government could otherwise spend on its priority programs.
“That goes to the benefit of the Filipino people. We have another P3 billion that we can spend for education, for healthcare,” Dominguez said. “So there are positive benefits from this, and I hope that with this credit rating upgrade recently, the Senate will really consider passing these bills that will redound to the benefit of the Filipino people.”
The Finance chief said S&P has cited the completion of the rest of the CTRP packages as among the actions needed for the Philippines to enter the ‘A’ rating territory.
“What S&P really is saying (in its report) is this is the roadmap to a second upgrade. It's right there, all you have to do is follow it: Complete the tax reform program; sustain the deficit at 3 percent, don't increase it in other words; lower your debt-to-GDP ratio, it's all there,” Dominguez noted.
In its report on the Philippines’ credit rating upgrade issued last April 30, S&P said it “may raise the ratings over the next two years if the government makes significant further achievements it its fiscal program, or if the country’s external position improves such that its status as a net external creditor becomes more secure over the long term. We may also raise the ratings if we find that the institutional settings in the Philippines have improved markedly.”
Aside from the reforms in corporate taxation, which cover the reduction in the current CIT rate of 30 percent – the highest in the region – and the rationalization of fiscal incentives, the Department of Finance (DOF) is also urging the Congress to pass the bills further raising excise taxes on tobacco and alcohol; increasing the government’s share from mining operations; lifting bank secrecy laws and ensuring the automatic exchange of tax information; reforming the property valuation system of local government units (LGUs); and rationalizing capital income taxation.