Substitute tax proposal expected to yield less

PHILIPPINES - In Brief 04 May 2017 by Romeo Bernardo
The Department of Finance (DoF) today released a statement to the media reporting that the House ways and means committee passed yesterday a substitute tax reform measure that “only had moderate changes” from the DoF proposal. The longish statement, posted on its website, details the specific features of the bill. (http://www.dof.gov.ph/index.php/dof-lauds-substantial-progress-in-ctrp-bill-in-congress/)What is not mentioned is the revenue impact of the substitute bill. We gather from knowledgeable sources that the estimated net yield is only 0.3% of GDP, much less than the target of around 1% of GDP. Despite the wide gap, credit watchers we talked to seem encouraged by the progress made. Nonetheless, as we have noted in previous reports, the tougher battle lies ahead, in the Senate. There, with each member looking out for his/her own political future, further dilution of target revenues can be expected. Based on government soundbites, the reduced yield would translate into a less ambitious infrastructure program rather than unsustainable deficits.Timing-wise, the DoF anticipates the lower House to pass the substitute bill by early June before congress adjourns. That means that the Senate will only start tackling the bill in late July when the next session resumes. The chances of Senate approval slipping to 4Q17 are high, in our view.

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