Moody’s Investors Service has seen the Philippines’ comprehensive tax reform program (CTRP) as credit positive, as it will address the government’s weak revenue generation.
Moody’s Credit Outlook released on Monday noted that the Tax Reform for Acceleration and Inclusion (TRAIN) bill, which was approved on third and final reading last week in the House of Representatives, is crucial for the Duterte administration to keep fiscal debt narrow despite the government’s plans to accelerate infrastructure spending over the next five years.
“The TRAIN bill will boost revenue and improve the government’s debt affordability, as measured by interest payments as a share of revenue,” Moody’s said.
It noted that the previous administration has increased government revenue with its improved tax collection. Government revenue in 2016 rose to 15.2 percent of the country’s gross domestic product (GDP) from the 13.4 percent of GDP in 2010.
But the potential addition to revenue was diluted to about P82 billion, or 0.5 percent, of GDP from the P162.5 billion, or 1.0 percent of GDP, in the original proposed package with the simplification of rate structures for personal income taxes.
However, it will be offset by additional taxes on items like automobiles, fuel, and sugar-laden beverages.
“Official estimates of the tax reform’s revenue effect are still forthcoming, but we expect that the debt affordability ratio will fall to less than 13 percent by 2018 from 24.4 percent in 2010 should the bill pass into law later this year,” the report read.
Moreover, Moody’s said the passage of the TRAIN bill in the lower house demonstrated the capacity of the Duterte administration to implement reform amid political controversies.
“Since last year, Mr. Duterte’s administration has been mired in various controversies related to his focus on security and the war on drugs. As a result, strained relations with some factions in both houses of congress threatened to detract attention away from the reform agenda, particularly those related to economic and fiscal matters,” it noted.
“Against the backdrop of political controversy, the passage of the tax bill also demonstrates the government’s capacity to implement reform,” Moody’s added. (Kris M. Crismundo/PNA)
photo credit: East African Development Bank
