The Philippines may receive another credit-rating upgrade in two years if the government sticks to a fiscal road map that includes boosting state revenues by reforming the country’s antiquated tax laws, according to the head of the Duterte administration’s economic team.
In particular, Finance Secretary Carlos Dominguez III said it was important for Congress to pass another set of tax measures “focused on fairness and on getting a rational approach to [fiscal] incentives” for the country to achieve an “A” rating from international debt watcher Standard & Poor’s—a level never before achieved by the Philippines.
“The next phase of our tax reform is not focused on raising revenues,” he told reporters on the sidelines of the finance department’s 122nd anniversary ceremony. “It is not for additional revenues, with the exception of [additional] sin taxes.”
“We want to [get another upgrade] in two years,” Dominguez said. “They say it’s possible in two years. They’re the ones who are saying this, not us. So we will certainly be putting our shoulder to the wheel here.”
To achieve this, Dominguez said the country only had to comply with the prescriptions of S&P, which calls for the government to complete its multiphase tax reform program, keep the fiscal deficit to within 3 percent of gross domestic product and lower the country’s debt-to-GDP ratio.
The finance chief said he expected the administration to encounter less resistance to the second phase of the tax reform law because it aimed mainly to cut the income tax rate for corporations from 32 percent to 25 percent, while offsetting this with the removal of tax perks currently enjoyed by some firms located in special economic zones—benefits that Dominguez believed had outlived their use in luring investors to the Philippines.
Meanwhile, additional taxes on tobacco and alcohol products will be aimed at putting the prices of these so-called sin products “beyond the reach of young people, so that they don’t get the habit.”
On Monday, Dominguez noted that the recent upgrade by S&P placed the country above the ranks of other large and robust economies like Italy, Portugal and Indonesia.
The Philippines’ rating upgrade from “BBB” to “BBB+” with a “stable” outlook is only a notch below the investment grade of such economies as Spain and Malaysia and is on par with the credit rating of Peru, Thailand and Mexico.
“It is also a tribute to the hard work put in over the years by our predecessors and the men and women who continue to work for this department,” Dominguez said.