Three wishes for the economy in 2018

PHILIPPINES - In Brief 01 Jan 2018 by Romeo Bernardo

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1. Much more activity under Build Build Build (BBB), government’s massive P8.1 trillion medium-term infrastructure program that has been likened to a battleship that will be hard to stop once it has gathered momentum. The passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Act puts some P80 to P90 billion in new money in the hands of government in 2018 that people expect will largely be used for upgrading and expanding the country’s networks of water, power, road, rail and air/seaports. Despite assurances from the Department of Budget and Management of improving disbursement rates overall, the 50% disbursement ratio as of November 2017 of the Department of Transportation, one of two key infrastructure agencies, leaves much room for improvement. Government is targeting to increase its investments in infrastructure from 5.4% in 2017 to to 7.3% of GDP by 2022, to help ease supply bottlenecks and allow the economy to scale a higher growth path.2. Passage of Package 2 of the Duterte Administration’s Comprehensive Tax Reform Program. Package 2 seeks to lower the corporate income tax rate (CIT), currently at 30% and higher than the statutory tax rates in most ASEAN economies. To compensate for expected revenue losses, the Finance Department wants to remove a plethora of fiscal incentives that costs government about 1% of GDP annually. The plan is to calibrate CIT cuts so that revenue losses will be roughly offset by revenue gains from removing fiscal incentives. While Package 2 will not be a revenue measure, it is expected to (a) make the economy more competitive and attractive to foreign investments with a lower CIT and (b) widen the tax base with fewer activiti...