Tax reform: down to the wire (4)

PHILIPPINES - In Brief 12 Dec 2017 by Romeo Bernardo

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With, we learned, the Secretary of Finance in attendance facilitating discussions, the Bicameral Conference Committee on the tax reform bill pulled a couple of all-nighters since last week to finally have a reconciled version of tax package 1. The two chambers of congress are expected to ratify this reconciled version, perhaps as soon as tomorrow, to give time for the requisite 15-day publication period and implementation by January 2018.As expected, the final tax bill contains many compromises and policy measures that experts say create or add to distortions and run against the basic goal of improving the tax structure. The biggest concerns deal with the introduction of new exemptions in the VAT system that could be sources of large revenue leakages down the road, the raising of documentary stamp taxes and other capital income taxes that are not in keeping with capital market development, and increases in other taxes, intended mainly to make up for lost revenues, but which have not benefited from more thorough studies.Despite these flaws as well as below target revenue yield – initial estimates put expected yield at less than P100 billion, markedly below the Department of Finance’s P130 billion target – markets are likely to take the passage of the tax reform package as positive news. Ahead of congress’s ratification, Fitch Ratings yesterday upgraded the sovereign’s credit rating to BBB, at par with Moody’s and S&P’s ratings for the Philippines. Aside from expected yield, markets are principally focused on the reform’s contribution to fiscal health (and thus macroeconomic stability) and consumer spending (via tax cuts for wage earners), as well as funding government’s...