Finance Secretary Carlos Dominguez said he’ll reach an agreement this quarter with lawmakers on a plan to raise taxes, helping to stave off a credit-rating downgrade to junk.
Dominguez said President Rodrigo Duterte won’t hesitate to use his political power to ensure passage of key tax changes needed to fund higher state spending. A government-backed bill on the plan was filed at the House of Representatives Tuesday, months after the finance department submitted its original proposal.
“This is a poker game,” Dominguez, 71, said in an interview in his office Tuesday. “There’s a point when we have to agree.”
The revised version of the tax plan, forecast to yield P162.5 billion a year in revenue and supported by Dominguez, was filed as House Bill 4774. An earlier proposal in September didn’t progress as lawmakers balked at scrapping some exemptions for the elderly and disabled, and higher levies on fuel and cars. The increases are meant to offset income-tax cuts that Duterte promised during his election campaign, while also expanding revenue sources.
“We’re giving them time, wrapping their minds around it,” Dominguez said. “I think we’ll get majority support for tax reform. We’re working toward a workable, fair bill that requires concessions.”
The House Bill reflects some compromises. It will retain exemptions on the elderly and disabled while additional excise taxes on fuel will be implemented in phases through 2019, Finance Undersecretary Karl Kendrick Chua told a briefing on the bill at the Lower House Wednesday. Another P44.3 billion in revenue yearly may come from other proposed legislation, including a tax on sugar-sweetened drinks.
Dominguez warned earlier this week that the nation’s credit rating is at risk of returning to junk grade if Congress fails to pass revenue-raising measures along with the tax cuts. The Philippines, among the fastest-growing economies in the world, must fund $160 billion in infrastructure projects in the next five years while keeping the budget deficit under 3 percent of gross domestic product.
“In the absence of a tax package where you have a net revenue gain for the government, infrastructure spending will have to be scaled back to ensure credit ratings remain steady,” said Joey Cuyegkeng, a senior economist at ING Groep NV in Manila.
House Speaker Pantaleon Alvarez, among the leaders of Duterte’s political party, said on Monday the government must plug loopholes in tax collection before Congress considers new taxes on petroleum.
S&P Global Ratings said last week a reversal of gains in the Philippines’ fiscal and external positions may prompt it to lower its BBB debt rating. The nation won its first-ever investment grade scores from S&P, Fitch Ratings, and Moody’s Investors Service under former President Benigno Aquino.
A rating downgrade may boost the nation’s debt costs at a time when the government is seeking to raise funds. The Philippines on Wednesday started its latest sale and exchange of global bonds.
