Elections, reform fatigue seen delaying tax reforms
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 26 Dec 2018 16:22:22 +0000
The midterm elections and foot-dragging could continue to delay the passage of the Duterte administration’s pending tax reform measures, Japan’s Nomura said.
“The midterms will likely pose some uncertainty to the prospects for fiscal reform through the rest of President [Rodrigo] Duterte’s administration,” Nomura said in a recent report.
“There are signs of reform fatigue as the implementation of Package 1 led to some public backlash and the perception that it contributed to this year’s surge in inflation,” it added.
The 17th Congress has so far passed just one of the Duterte government’s tax reform packages, the Tax Reform for Acceleration and Inclusion (Train) Act that took effect at the start of the year.
The law, which provided income tax exemptions for those earning P250,000 and below and sought to make up for the revenue loss by imposing new taxes on fuel and sugar-sweetened beverages, among others, has been blamed for stoking inflation, which blew past the 2.0-4.0 target in March and hit a nine-year high of 6.7 percent in September.
Package 2, which calls for the gradual lowering of corporate income taxes and the streamlining of incentives offered to investors, was approved by the House of Representatives in September but has been held up in the Senate over concerns that the loss of perks could lead to job losses and turn off investors.
The Senate’s counterpart version, the proposed Corporate Income Tax and Incentives Reform Act, remains pending at the ways and means committee. Economic managers had wanted a final bill approved by the end of 2018 at the latest.
A tax amnesty under Package 1B, meanwhile, has been passed by both chambers but the Department of Finance wants its recommended measure, which includes provisions not included in the Train Act such as changes to the bank secrecy law, approved.
Bills covering reforms proposed in other packages, such as higher taxes on alcohol and tobacco, and the proposed Passive Income and Financial Taxation Act, were rushed to third reading approval by the House earlier this month but have yet to be acted upon by the Senate.
Legislators are currently on a month-long break and will return to work on January 14, 2019, only to adjourn session a month later as campaigning for the mid-term elections starts. Session will again resume on May 20 — after the May 13 elections — but will only run for three weeks, after which the 17th Congress’ term officially ends.
This means all pending bills will have to start from square one under the 18th Congress, whose first regular session starts July 22.
Given the fallout from the Train law’s implementation, Nomura said it was likely that “the remaining packages will also face further delays.”
“In that scenario, the pace at which related legislation can be passed will depend on the outcome of these elections, i.e., whether President Duterte’s allies win and he retains his ‘super-majority’ in Congress,” it added.
Nonetheless, Nomura said the legislative delays would have limited implications for spending or fiscal risks.
“[W]e do not expect these delays to increase fiscal risks in the near term or to affect spending priorities, particularly infrastructure spending which is gaining more traction,” it said.
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