Passage of revenue measures to boost PH credit rating

By Lawrence Agcaoili, The Philippine Star

Posted at Apr 15 2012 02:30 PM | Updated as of Apr 16 2012 02:57 PM

MANILA, Philippines -- New York-based think tank Global Source Partners said the passage of key tax measures would further boost the chances of the Philippines to achieve another credit rating upgrade this year.

Global Source said there is a 60-70% chance that the indexation of excise tax on alcohol and tobacco products that could raise P60 billion or 0.6% of gross domestic product (GDP) would be passed by Congress.

“We estimate the odds of passage of a more or less undiluted sin tax reform bill, which is expected to raise P60 billion, or about 0.6% of GDP, to be better than even though not by much around 60% to 70%,” the think tank said.

Officials from the Department of Finance (DOF) have pointed out that the passage of revenue-increasing bills such as the indexation of sin taxes and rationalization of fiscal incentives in Congress could help tilt the scale in favor of an upgrade.

According to the think tank, the country’s tax effort has recently been whittled down by the implementation of several revenue-eroding laws and the enactment of much-needed revenue-generating legislation, including the reform of tobacco and alcohol taxes and fiscal incentives rationalization, are not likely to be passed in the near-term.

Aside from the passage of revenue measures, Global Source said the government should succeed in frontloading expenditures this year to boost economic activity.

The Philippines managed to trim its budget deficit to 2% of GDP last year instead of the programmed 3% of GDP due to cautious spending by the Aquino administration.

“The plan now is to reverse this by frontloading expenditures while carrying over delayed projects to the current year. So far, we are hopeful government will succeed in the task.

Standard and Poor’s (S&P) recently raised the country’s credit rating outlook to positive from stable paving the way for a possible upgrade of the rating that is currently two notches below investment grade within the next six to 12 months.

London-based Fitch Ratings rated the country’s sovereign credit at one notch below investment grade while Moody’s Investors Service as well as S&P place the country’s sovereign credit at two notches below investment grade.

“Both Moody’s and Standard & Poor’s recently released reports that signaled an inclination to raise the country’s credit rating,” Global Source added.