Tax reform to ramp up infra spending – BMI Research

MANILA, Philippines – The research arm of the Fitch Group said the proposed tax reform program would allow the Duterte administration to ramp up infrastructure spending without risking macroeconomic instability.

BMI Research said the first out of four proposed tax reform packages introduced by the Department of Finance (DOF) would be positive for revenue growth.

The unit said the Comprehensive Tax Reform Program (CTRP) would allow the government to push through higher infrastructure and developmental spending under the Philippine Development Plan 2017-2022 without risking macroeconomic instability.

According to BMI Research, the tax program will help drive real gross domestic product (GDP) growth in excess of six percent over the coming years.
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Under the medium term development plan, the administration intends to ramp up infrastructure spending to 7.4 percent of GDP by 2022 from 5.1 percent of GDP in 2016.

To achieve this, the government would raise developmental spending as a share of overall expenditure to 50.1 percent, from the average level of 33 percent between 2010 and 2015.

The Finance department has already raised the budget deficit ceiling to three percent instead of two percent of GDP with the planned additional public infrastructure spending.

BMI Research sees the country’s budget deficit as a share of GDP to increase to 2.7 percent this year from 2.4 percent last year.

“We also expect the higher targeted developmental spending outlined in the PDP 2017-2022 to support real GDP growth over the next five years, which we forecast to average 6.1 percent,” it said.

The tax reform package is one of the key features of President Duterte’s 10-point socioeconomic agenda.

It is the first of a series of four tax reform packages, and aims to lower personal income tax rates for most Filipinos, boost revenue by increasing excise rates on automobiles and fuel, and expand the value added tax base.

“In our view, the income tax reforms will not only simplify the income tax system for most taxpayers (thus reducing the cost of compliance), but also help to shift the tax burden from the poor to the rich which will support more inclusive growth,” BMI Research said.

In order to make up for the loss of revenue from lower personal income taxes, three offsetting measures have been proposed including limiting the VAT exemption to essentials, raising oil excise rates, and doubling the excise tax imposed on motor vehicles.

The tax reform package also corresponds with the economic development objectives laid out in the PDP 2017-2022, which was approved by the National Economic and Development Authority (NEDA) Board in late-February.

“We believe that the government’s medium-term plan to boost infrastructure and developmental spending, combined with offsetting measures to improve revenue and reduce current expenditure, bodes well for fiscal sustainability and real GDP growth,” it said.

http://www.philstar.com/business/2017/03/10/1679525/tax-reform-ramp-infra-spending-bmi-research