BSP keeping close watch on tax reform

MANILA, Philippines - Monetary authorities are closely watching the developments in the complete overhaul of the country’s tax program being pushed by the Duterte administration particularly its impact on consumer prices.

 Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said authorities are watching out for the final form of the tax reform that would be approved by Congress.

“We will have to determine the impact of such changes in fiscal policy on the inflation path going forward, keeping in mind the need to distinguish the short term impact versus the longer term effects,” he said.

The Department of Finance (DOF) is pushing the Comprehensive Tax Reform Program (CTRP) which is crucial to the financial viability of the Duterte administration’s higher public spending policy.

The tax overhaul, the finance department explained, aims to correct our tax system’s “inherent flaws, such as non-indexation to inflation of rates and large scope of exemptions and special treatments that complicates tax administration” that have for long prevented the Bureau of Internal Revenue and the Bureau of Customs from consistently meeting, much less surpassing, their annual revenue targets.

The government committed to ramp up infrastructure spending to seven percent of gross domestic product (GDP) by 2022 from the projected 5.4 percent this year.

The CTRP involving the lowering of personal income tax rates, the broadening of the value added tax (VAT) base, and increasing the excise tax on oil products would yield a net gain of P41.5 billion in the second half of the year.

Tetangco said the US Federal Reserve has been consistent in stating that authorities are poised to raise rates and reduce accommodation.

“The timing and magnitude, however, are what remain undetermined at this point,” he commented on the statement made by US Fed chair Janet Yellen.

“The Fed chair also flagged the need to discern the impact of the new fiscal policies of the Trump admin. The latter is not unlike our concern in the Philippines – we are watching out for the final form of the tax reform that will be approved by Congress,” Tetangco said.

Last Feb. 9, the BSP raised the inflation forecast to 3.5 percent instead of 3.3 percent for this year and to 3.1 percent instead of three percent for 2018.

Authorities took into consideration higher oil prices, the depreciation of the peso against the US dollar in the fourth quarter, the minimum wage adjustment in June as well as the firm domestic demand.