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Philippine President Rodrigo Duterte speaks before the lawmakers during his first State of the Nation Address at the Philippine Congress in Manila in July 2016.   © Reuters
FT Confidential Research

Philippine tax reform compromises may limit infrastructure drive

Legislative spats over tax reforms could also concern credit rating agencies

| Philippines
  • The first of five tax reform bills initiated by the Duterte administration is expected to be passed into law by October, three months behind schedule.
  • The delay could allow legislators to force the administration to compromise on its tax-raising goals in the bill amid fears over the impact on consumers of two proposed tax rises.
  • Lower net revenues from the resulting legislation may force the government to scale back its plans for much-needed infrastructure spending, and could raise the possibility of credit rating concerns.

Philippine President Rodrigo Duterte may have delivered on his promise to wage war on drugs and crime but another campaign pledge to cut income taxes, as part of a broader tax system overhaul, is struggling to get through the congress. That risks compromises which could threaten the government's infrastructure spending plans as well as rating agencies' views of the country's sovereign rating.

The Philippines has one of the highest top-tier personal income tax rates in the so-called ASEAN-5, at 32%. The Duterte administration has embarked on a comprehensive tax reform program that would not only lower this rate but would also increase others, such as an excise on fuel.

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