The government is under pressure to deliver the second package of the Comprehensive Tax Reform Program (CTRP) if only to win the good graces of the various sovereign credit watchers, who made it very clear that an upgrade is possible, only if the second round of tax reforms is successfully pursued and implemented. In the case of Standard & Poor’s (S&P), such an upgrade would lift the country’s credit standing to the ranks of the “A”-rated countries, such as China or Saudi Arabia at the moment.
This was intimated by experts at S&P Global Ratings, the financial information and analytics unit of S&P who said a successful pursuit of the so-called Package Two of the CTRP would provide a tremendous boost to the country’s bid to transit to the A-rated list of sovereign
debt issuers.
The experts said that with Package Two in place, the boost in the credit standing of the Philippines should happen within 12 months from implementation.
S&P and colleagues in the sovereign credit space are on the lookout for sustained economic growth and real achievements in the fiscal space, such as on-target revenue generation and reduction in debt burden.
A credit boost from existing category as a “BBB”-rated economy to an A-rated issuer would mean prospectively lower credit costs for the Philippines when it borrows overseas,
for instance.
Such an upgrade should also extend tremendous publicity advantage for President Duterte, whose unapologetic war on against drugs and corruption in the civil service has set the global community on edge.
Under the Duterte administration, the Department of Finance successfully implemented Package One of the CTRP that brought down the income-tax burden of the low- and middle-income segments while also hiking the excise petroleum and sugary drinks.
Package Two, although still in the draft stage, looks to reduce the income tax of the corporate sector and recalibrate the system of fiscal incentives given them.
While still in its infancy, the package has already attracted a fair amount of controversy, particularly from those keen on preserving the country’s reputation as an attractive investment destination.
The S&P unit said the uncertainty surrounding the second tax-reform package could further dilute investor interest in the Philippines as indicated by the amount of foreign direct investments (FDI) poured into the $297-billion economy. At the moment, S&P Global Ratings said the long-haul foreign investor has adopted a basically wait-and-see stance on the Philippines as investment destination.
Nevertheless, S&P Global clearly indicated that while Package Two of the CTRP could prove initially painful, such was required to help sustain the country’s growth momentum seen averaging higher or in the vicinity of 7 percent or 8 percent in terms of the GDP over the medium horizon.
The S&P unit also lauded the government for ensuring the adoption of Package One of the CTRP, whose revenue gains were to provide the financial wherewithal to underwrite the very ambitious and multiyear “Build, Build, Build” program of the government.
The S&P unit acknowledged Package One contains “painful measures” based on the gathering volume and resistance displayed against it by sector,s such as ordinary consumers, and even the legislators themselves.