Phl needs sustainable revenue stream - S&P

MANILA, Philippines - Global credit rating agency Standard & Poor’s said the “sin tax” or any other revenue measure need to be able to boost the country’s “low tax to GDP ratio” in a sustainable way for the Philippines to get that much desired credit rating upgrade.

In an e-mail response to The STAR, S&P said it would rate the country’s sin tax measure or any other revenue measure based on fiscal sustainability.

S&P also said the passage of the sin tax measure itself is not necessarily a condition for a credit rating upgrade for the Philippines.

 “The passage of the sin tax measure, or of any other revenue measure for that matter, is in itself not a necessary condition for a positive rating action,” said Agost Benard, associate director of sovereign and international public finance ratings.

Instead, Benard said that the revenue measures need to result in an overall improvement in the country’s tax to gross domestic product (GDP) ratio.

Benard said the recent visit of S&P did not focus on any particular topic and that the review team discussed with the government all areas that influence the sovereign rating.

 “Revenue measures will be judged in the context of overall fiscal sustainability and whether they can boost the Philippines’ low tax to GDP ratio in a lasting way,” Benard said.

An S&P review team was in the country last month as part of its regular assessment on the country’s fiscal and monetary environments and overall economic fundamentals.

The team met with fiscal officials regarding gains made in tax administration and revenue enhancement.

Bureau of Internal Revenue (BIR) Commissioner Kim Henares, who met with the review team, said S&P called for the passage of both the sin tax and the fiscal incentives measures by June 30.

The timely passage of the two measures would boost the country’s chance of securing a credit rating upgrade.

The sin tax measure currently being pushed by the Aquino administration is House Bill 5757, authored by Cavite Rep. Joseph Emilio Abaya. The measure, currently pending at the House Ways and Means Committee, calls for the adoption of a unitary tax system for tobacco and liquor and indexation of taxes to inflation.

The measure is estimated to yield an additional P60 billion in fresh revenues from cigarettes and tobacco products.

The World Bank is also pushing for the passage of the Abaya measure. A study made by the multilateral lender estimates that the country could gain as much as 1.3 percent of GDP in additional revenues from reforms in sin taxes like uniform tax rates and indexation.

The Finance Department, together with the Department of Trade and Industry, has been pushing for a fiscal incentives bill. The department said the measure would “strike a balance between the country’s need to attract investments but at the same time minimizing the agency’s revenue losses.”

The Aquino administration wants to stop giving out income tax holiday to investors, saying that such tax perks leave a dent on revenues.

Last year, S&P upgraded its outlook for the Philippines to positive from stable.