Analysts cite gains from Train approval


Analysts have welcomed the Senate’s approval of tax reforms sought by the government, noting the expected lift for state revenues and the economy as a whole.

The Senate on Tuesday voted 17-1 to pass its version of the proposed Tax Reform for Acceleration and Inclusion Act (Train), some six months after the House of Representatives approved its own bill.

In a report, Nomura Securities Co. Ltd. said Congress had time to complete the next step of the legislative process, which is to reconcile the Senate and House versions into a measure President Rodrigo Duterte could sign into a law before the year ends.

“We continue to firmly believe that the first package of tax reforms will be enacted before year-end and effective at the start of 2018 with a sizeable impact on net revenue,” it said.

For the law to be implemented on January 1, 2018, a bicameral conference committee will have to complete its work next week.

Nomura said the proposed reforms, which include personal income tax cuts and higher taxes on cars, would simplify and make the tax system more efficient and also help fund the government’s ambitious infrastructure program.

The Philippine Development Plan calls for public spending on infrastructure to increase to 7.4 percent of gross domestic product by 2022 from the current level of 5.1 percent.

Nomura said lower income taxes should also boost disposable incomes, further supporting its bullish growth outlook for the Philippine economy,

“We forecast 2017 GDP (gross domestic product) growth of 6.7 percent and see upside risks to our already above-consensus 2018 forecast of 6.8 percent,” it said.

Nomura said the timely enactment of the first set of tax reforms should also give the government momentum to table the next package, which includes corporate income tax cuts that may further attract foreign direct investments.

Financial services giant Credit Suisse, meanwhile, noted that the Senate’s Train bill “is slightly more supportive of private consumption, with personal income tax cuts frontloaded in one tranche … compared with two tranches in the House version (2018 and 2020).”

Credit Suisse also said that inflationary pressure would likely be lower if the Senate version became law.

Reasons cited included the back-loading of fuel excise taxes, lower tax increases on sugary drinks, the narrower scope of newly introduced taxes such as those on cosmetic procedures, and the retention of value-added tax exemptions for items such as low-cost rentals and mass housing.

Credit Suisse’s previous analysis of the House bill showed that inflation should rise by about 0.9 percent to 1.2 percent in 2018 due to the tax changes.


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