Country Report

Philippines: Reforms to boost spending and consumption

by Alfred Dy / Jul 20, 2017

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Tax hikes are rarely met with cheers but The Philippines Comprehensive Tax Reform Program (CTRP) is something to celebrate. The first phase of the Duterte administration’s most important economic reform should become law by year-end, with the money slated to jumpstart long-overdue infrastructure initiatives to improve public facilities. But the real crowd-pleaser is the income-tax cut for the bulk of the workforce.

ABC’s of the CTRP The CTRP is a series of reforms designed to raise tax take by P375bn per annum by 2020, equivalent to around 1.7% of GDP. Finance Secretary Dominguez says the proceeds will help finance the government’s six-year infrastructure scheme worth P8.0tn. Congress has passed Package 1 (House Bill 5636) and it is calendared for Senate deliberation from 24 July 2017. We expect this first phase to be signed into law before the end of the year. The government aims to raise P133.8bn from Package 1 next year, equivalent to 0.8% of 2018 GDP.

And the survey says We commissioned a nationwide survey of 1,200 Filipinos aged between 21 and 59 across seven income brackets to gain a glimpse of how the proposed Package 1, and particularly the lowering of personal income tax, would affect consumption. All-told, average take-home pay could increase by 7% from which our respondents hope to save 26.9% of the incremental earnings with the remaining 73.1% going on consumption.

Sector implications – net positive Our survey suggests banks will benefit from more deposits and loans. Retailers could be winners too as people allot an extra 13.8% to groceries. Telcos should also gain, as our respondents said they would spend 2.8% more on mobile credit (load) and 3.3% more on broadband. Quick-service restaurants are also potential beneficiaries, with 4.3% slated for dining out, while travel should get a boost, taking 3.4% of the bigger wallet. However, higher excise tax may cause a short-term slowdown in growth in the autos sector.

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