Moody’s sees strong support for ongoing tax reform in Philippines

MANILA, Philippines — Moody’s Investors Service expects the Philippines to garner the most support from ongoing tax reforms in the medium term.

In a report titled “Tax base broadening most likely to be effective in countries with strong tax administration,” the debt watcher said tax reforms are most likely to expand revenue bases in fast-growing economies with strengthening expenditure and debt management.

Moody’s said the Philippines has the strongest probability of effective tax reform in terms of direct tax revenue mobilization, indirect revenue mobilization as well as tax administration and compliance.

President Duterte signed Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law last December, slashing personal income tax rate but raising excise taxes on motor vehicles, oil, and sweetened beverages. The law took effect last Jan. 1.

Moody’s said tax base broadening alone is unlikely to boost fiscal strength in many economies and should be accompanied by fiscal deficit reduction, including measures that effectively manage expenditure growth.

The rating agency said tax administration and compliance is likely to be most effective in the Philippines, India, Indonesia, and Thailand.

It added reforms to direct taxes are not limited to the Philippines after it overhauled its personal income tax rate structure as part of the government’s comprehensive tax reform program.

According to Moody’s, the Philippines stands out as having both comparably fast high real gross domestic product (GDP) growth rate and being the only country that has seen a material decline in its debt burden.

The Philippine economy grew by 6.8 percent in the first quarter from the revised 6.5 percent in the fourth quarter of last year.

Economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) have set a GDP growth target of between seven and eight percent this year from 6.7 percent last year.

Moody’s said countries with higher and increasing institutional strengths such as the Philippines, India, and Indonesia appear to have greater scope for tax reforms to result in higher tax revenue collections.

The first package of the country’s comprehensive tax reform program (CTRP) is a key feature of the Duterte administration’s 10-point socioeconomic agenda.

The second phase targets the corporate sector through a lower corporate tax rate of 25 percent from 30 percent, on top of providing additional tax incentives for the business process outsourcing sector (BPO), which has been an important engine for economic growth over the last few years.