Fitch says tough for PH to boost revenue without more taxes

by Coco Alcuaz, ANC

Posted at Jul 19 2011 03:08 PM | Updated as of Jul 19 2011 11:53 PM

Supports govt's carefulness in spending, PPP

Manila, Philippines - Fitch Ratings, which says the Philippines needs to improve revenue to get an investment-grade rating, believes it may be difficult to do that without raising tax rates or imposing new taxes.

President Benigno Aquino is sticking to last year's election campaign pledge to chase tax cheats rather than raise taxes. The tax and customs bureaus file criminal complaints against suspected tax evaders and smugglers every week since Aquino took office. So far, no one has been convicted.

"The revenue rate in the Philippines is exceptionally low at 14.2% in 2010, which is the third lowest of all countries in our BB category,'' Andrew Colquhoun, head of FItch's Asia-Pacific sovereign team, said in an ABS-CBN News Channel interview. "Global experience indicates that boosting the tax take meaningfully through administrative measures is difficult to achieve, though it may be easier for the Philippines given the low starting point."

Indonesia will likely reach investment grade status before the Philippines because its ratings outlook is already positive while the Philippines' is stable, Colquhoun said. 

"There's stronger momentum behind the sovereign rating of Indonesia at the moment, explaining their positive outlook, largely on account of the stronger growth prospects in their economy,'' Colquhoun  said, projecting Indonesian growth of 6% to 6.5% per year in the next few years compared with 4.5% to 5% for the Philippines.

"The difference may not seem like much but it adds up over time and from a roughly similar starting point (in 2005), Indonesia has average incomes of about $3,000 a head now, the Philippines $2000 dollars. These sort of differences in economic performance add up over time."

Philippine growth may be damped this year as government spending fell 10% in the first five months. Fitch is not concerned about this now, believing it is the result of a new government reviewing contracts and that spending will pick up as reviews are completed.

"The administration has been significantly careful on spending in the first half of this year," Colquhoun said. "We think spending will recover later in the year as projects are certified and expenditure can proceed."

For the same reason, he is not concerned with perceived delays in Aquino's plan to bid out 10 infrastructure projects this year, and more in succeeding years, under his Public-Private Partnership (PPP) program.

While Aquino announced the program in July last year, none have been bid out. The first, the contract to operate Manila's MRT and LRT-1 commuter rails, was scheduled for July 11 but put off after Transport Secretary Ping de Jesus resigned and former Senator Mar Roxas took over. Roxas said he is studying whether the operation needs to be privatized at all.

"Obviously it (the PPP program) would be positive for tackling one of the weaknesses in the economic fundamentals and the credit fundamentals of the Philippines, which is the relatively poor state of the physical infrastructure," Colquhoun said.

"But the point i would make is that i think it's encouraging that the administration is resisting the kind of short-term political pressure to just press ahead with projects even if the money may not necessarily be spent as effectively as it could be and i think it's encouraging that there is an emphasis on the efficiency and the effectiveness of projects," he added.