Even with nagging political “noise” in its first two years, the Duterte administration was commended by debt watcher Moody’s Investors Service for being able to introduce necessary reforms, especially in the personal income tax system.
“Despite political noise, it has not distracted government performance to put together market reforms such as the TRAIN law,” Moody’s sovereign risk group vice president and senior credit officer Christian de Guzman said in a press conference Thursday.
De Guzman was referring to the Tax Reform for Acceleration and Inclusion Act signed by President Duterte in December, which since Jan. 1 jacked up or slapped new excise taxes on cigarettes, sugary drinks, oil products and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
He noted that in 2016 or at the start of the Duterte administration, Moody’s flagged risk from geopolitical concerns, specifically the President’s announcement of a “separation” from the United States, a long-time ally, while pivoting to China, with whom the country had a spat over territories in the West Philippine Sea.
Last year, Moody’s also raised its assessment of domestic risk due to the five-month fighting between government forces and Islamic State supporters in Marawi City, he added.
De Guzman also pointed to “political polarization” in the first two years of this administration.
“The concern here is that political risks could crystallize in a way that preempts reform. However, fast forward to 2018—we do see that has not come to pass,” De Guzman said.
“We haven’t changed our overall view on political risks—those still remain elevated. At the same time, we have not seen evidence of that political noise affecting this government’s ability to pass reforms,” according to De Guzman.
For instance, he noted that the passage of the TRAIN law was “not a slam dunk,” taking almost two years in Congress before it was signed into law even if the administration was fully behind tax reforms.
As such, the positive impact of the TRAIN law addressed the weakness of the Philippines’ fiscal profile, he added.
“When we first upgraded the Philippines to investment grade in 2014, it was, at that time, the lowest revenue earner among all investment-grade countries. But given the continued efforts not just by this administration but also the previous administrations, we have seen the revenue performance top that of other countries. So the Philippines is actually no longer the lowest revenue earner investment-grade country,” De Guzman said.
“So we do see the impact of reforms as being positive. We have seen the track record, so we are confident that there is a good chance that the other packages of the comprehensive tax reform program will be passed,” De Guzman added.