Tax cuts may hurt Philippine revenue reforms: Moody's

[MANILA] Moody's Investors Service warned against plans to cut income tax rates in the Philippines on Monday, saying it risked reversing the gains the country had made in improving government finances.

Manila's efforts to collect more revenue by intensifying a campaign against tax evasion and corruption and its strong economic growth helped win the country investment grade ratings last year from all three major credit ratings agencies.

Christian de Guzman, a vice president of sovereign ratings at Moody's, said revenue bills pending in Congress that seek to reduce the tax burden on workers could lead to wider budget deficits. "We want to be wary about reversing some of the gains that we've had over the past few years," De Guzman said.

Philippines remains one of the lowest revenue generators among investment-grade countries.

Bills seeking to lower income tax rates on individuals and corporates are now pending in both houses of Congress. Revenues that stand to be lost from the lower house version could reach at least 30 billion Philippine pesos (S$905 million), according to the Department of Finance.

The moves have gathered support ahead of presidential elections next year in which at least two candidates have said they supported lowering taxes to increase take-home pay of workers and entice investments and boost consumption.

De Guzman said the tax cuts will affect infrastructure spending. "They want to ramp up expenditures to 5 per cent of GDP but one of your major constraints to ramping up expenditures is revenues," he said.

REUTERS