FITCH’S BMI Research expects the tax reform bill to be further diluted as it goes through the Senate, resulting in a lower revenue take that could hinder the government’s ambitious infrastructure plan.
“The final version to be passed into law is likely to be a small fraction of the original edition, which could limit the government’s ability to push through [its]ambitious spending plans without exerting downside pressure on its fiscal position,” BMI Research said in an analysis released on Tuesday.
The House of Representatives passed on third and final reading last May 31 House Bill 5636, or the Tax Reform for Acceleration and Inclusion Act.
The measure seeks higher excise taxes on petroleum products and a new excise tax on sweetened beverages, as well as the removal of a number of exemptions from the value-added tax (VAT), to offset a reduction in personal income taxes that President Rodrigo Duterte promised during his campaign.
The Senate needs to pass counterpart legislation and reconcile it with the House bill before Duterte can sign it into law.
The House measure is expected to generate P82 billion in annual revenues, half the projected P162 billion in the original proposal of the Department of Finance, as lawmakers kept the VAT exemption of cooperatives, among other changes.
“This is unlikely to be the final version into law as we believe that the Senate may make further changes when it tackles the reform bill in the coming months,” BMI Research said.
BMI however kept its forecast of the Philippines’ fiscal deficit as a share of gross domestic product, which it expects to widen to 2.7 percent in 2017 from 2.4 percent in 2016.