Fri, May 05, 2017 - Page 6 News List

Duterte tax plan hits speed bump

BURDEN OF DEBT:Any delay or attenuating of the tax reform would hurt the Philippines’ ability to control its budget deficit and hinder infrastructure development

Bloomberg

Philippine President Rodrigo Duterte’s plan to raise taxes to help fund a US$180 billion infrastructure program in faces significant delays as lawmakers worry about a backlash from voters.

Duterte’s economic team had hoped the Philippine Congress would pass the first tax package shortly after next month to raise an estimated 163 billion pesos (US$3.3 billion) per year in revenue, equal to about 1 percent of GDP.

At least two senators said they doubt that will happen.

“The tax package is a bit controversial, because they’ve included an increase of the excise tax on fuel, which will impact a lot on everyone, not just the richest of society, but also the poorest of the poor,” said Philippine Senator Juan Miguel Zubiri, who is aligned with Duterte. “That’s where the difficulty is coming into the tax reform measure.”

To help offset the impact on middle to low-income earners, the package also proposes cutting income taxes.

With only one-quarter of the Philippines linked by paved roads, leaving the rest vulnerable to heavy rains that regularly inundate parts of the country, Duterte made fixing the country’s chronic infrastructure problems a key pledge when he took office almost a year ago.

A survey by the World Economic Forum cited inadequate infrastructure supply as the second-most problematic factor for doing business in the country.

Senate Minority Floor Leader Franklin Drilon said he did not think the tax reform would be passed this year.

The bill, which the Philippine Daily Inquirer reported on Wednesday was passed by the Philippine House of Representatives’ Ways and Means Committee, would need majority approval in the lower chamber before it gets to the Senate.

“We haven’t even seen any legislation yet,” Drilon said in an interview. “I don’t think it will be possible for the administration to get it through this year in the time we have left.”

With one of the lowest tax ratios in Southeast Asia, authorities are under pressure to boost revenue to keep the budget deficit under control at 3 percent of GDP and prevent the nation’s hard-won credit rating from falling back to junk.

Any delay or attempt to water down the tax reform might not only curb the rollout of new infrastructure, but also diminish growth prospects for one of the world’s fastest expanding economies.

It is also a test of Duterte’s support almost a year after his election victory. More than 200 lawmakers from different parties in the lower house of Congress coalesced behind him to form a “super majority,” while 18 of the 24 lawmakers in the Senate are aligned with the majority bloc.

With midterm congressional elections due in May 2019, Zubiri said he was concerned by Duterte’s reluctance to take the heat off them by spending his own political capital to sell the package to voters.

Broadening the tax base demonstrated “great fiscal responsibility,” Zubiri said, but it was terrible politically.

“You want to touch it with a 10-foot pole,” he said.

“It’s not a surprise that they’re running into some kind of trouble,” Capital Economics London-based senior economist Gareth Leather said. “It’s always the case that tax rises are never going to be popular, especially if you don’t have the full blown support of the president.”

House Majority Floor Leader Rodolfo Farinas on Tuesday said in a text message that Congress did not include tax reform on a list of priority bills that could be passed before Duterte’s July state of the nation speech because there was not enough time.

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