• Credit Suisse sees PH upgrade from Fitch


    Long-term revenue under ctrp matters most
    CREDIT Suisse sees the likelihood of a credit rating upgrade for the Philippines from Fitch Ratings if the Tax Reform for Acceleration and Inclusion Act (Train), approved by the House of Representatives on Wednesday, makes it through the Senate largely unchanged.

    The bank said Fitch may upgrade the Philippines to BBB, from BBB-, if the tax reform bill is passed into law as it is now written.

    Fitch has a BBB- investment grade rating for the Philippines with a positive outlook, compared with the BBB stable from Moody’s Investors Service and S&P Global Ratings.

    The first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP), Train, was approved by the House of Representatives by a 246-9-1 vote on May 31 before the Congress adjourned.

    This proposed act, which consolidated the Department of Finance’s (DoF) original proposal—House Bill (HB) 4774—with 54 other tax-related measures, seeks to make the country’s tax system simpler, fairer and more efficient by slashing personal income tax rates and adjusting excise taxes on certain products and broadening the value-added tax (VAT) base to fill up the consequent revenue loss.

    “We see a good likelihood that the Philippines will get a credit rating upgrade by Fitch, if the revised tax reform bill passes as it is written,” Credit Suisse said in a research note over the weekend.

    “We believe what matters most from the credit rating agencies’ perspective is the revenues generated over time, and not just one year’s revenues,” it added.

    Latest estimates by the DoF showed the government may generate P130 billion in potential net revenue in first year of implementation of the proposed measure, 17 percent down from P157.2 billion the economic managers originally estimated under HB 4774, where 95 special laws that will be repealed were listed.

    The original version does not include the tax on sugar-sweetened beverage, but provides for the indexation of fuel excise taxes to inflation after a three-year period.

    It also provides for a five-bracket tax scheme for automobiles, compared to the DoF-endorsed four-tiered structure. It will be implemented on a two-year staggered basis starting 2018, instead of the original proposal of full implementation in the first year.

    While the revised version of the bill implies that some revenues will be back-loaded, the total tax receipts generated by 2020 are actually quite similar, the Swiss banking giant noted.

    “We estimate that with the additional tax reform revenues, the government can raise spending by 1 percent of GDP while still lowering overall government debt metrics,” Credit Suisse said.

    The Philippine government can raise spending to 19.5 percent of gross domestic product (GDP) by 2019, from an estimated 18.1 percent at end-2017, and still lower the government-debt-to-GDP ratio, the bank said.

    Once the tax reform bill gets full congressional approval, the Philippines is off to fulfill a key constraint highlighted by Fitch and other rating agencies, Credit Suisse noted.

    “We think the other two major agencies, S&P and Moody’s, will take longer to upgrade the Philippines further as it still lags other BBB+ sovereigns on metrics such as per-capita GDP and revenues to GDP,” it added.

    The DoF will present its case before the Senate and hopes that senators would retain the bill in its present form.

    Over the weekend, Finance Secretary Carlos Dominguez 3rd told reporters the DoF will continue to brief the Senate on the tax reform package.

    “Our ideas generally haven’t changed, but the bill is already there. So we will continue to explain to them in greater detail what the package is all about, and we have about a month and a half to do it, so we have enough time,” he added.

    “You know I’m very confident that our legislators are very aware of what is needed in the country and are very responsive to what the country needs. I am very confident that we will all sit together and reason together and come to a bill that will be good for our country,” he added.


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