Philippines: S&P cautions on tax reform uncertainty

  • Prolonged uncertainty over tax reform could weigh on investor appetite towards the Philippines, S&P Global Ratings said on 26 Jul 18 in the wake of reports that lawmakers could be hesitant to approve measures involved as the May 19 midterm elections draw closer.
  • Andrew Wood, director for S&P’s sovereign and international public finance ratings, said approval of the second tax reform package will have a greater impact on the business climate than the country’s fiscal outlook.
  • The second package seeks to cut corporate income tax rates gradually to as low as 20% from 30% currently in order to put them at par with levels among the Philippines’ close Asian competitors for investments, as well as remove tax incentives given by 14 investment promotion agencies that are deemed redundant and which the Finance department estimates had cost the government some PHP300bn in 2015.
  • Pending approval of the reform, Mr. Wood said planned investments in the Philippines may be left hanging as investors await concrete progress.
  • S&P in Apr 18 revised its credit outlook for the Philippines to “positive” from “stable,” hinting at stronger chances of bagging a rating upgrade from the current “BBB” level, which is a notch above the minimum investment grade status.
  • The debt watcher has said the “positive” tag takes stock of the “more proactive” policy environment in the Philippines, which Mr. Wood said increases the chances that strong growth will continue without eroding state finances.
  • S&P remains upbeat about Philippine growth prospects over the medium term. The credit rater projects another 6.7% growth in 2018 to match 2017’s pace, among the fastest in Asia although short of the government’s 7-8% target.

External Link: