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Non-metallic minerals’ excise levy doubled as Senate OK’s tax reform

THE SENATE successively approved on second as well as final reading late yesterday afternoon the first of up to five tax reform packages of the administration of President Rodrigo R. Duterte, putting this flagship program on track to implementation as 2018 opens in order to help finance an P8.44-trillion infrastructure development plan till 2022.

Senate Bill No. 1592 — sponsored by Senator Juan Edgardo “Sonny” M. Angara, chairman of the Senate Ways and Means committee — was approved with 17 affirmative and one negative vote.

The House of Representatives approved its version, House Bill No. 5636, on March 31 after that measure was filed in the chamber in January. The Finance department (DoF) submitted its draft to Congress in September last year.

In one of its last amendments, SB 1592 added a provision that doubles the excise tax rate for non-metallic minerals and quarry resources to four percent from two percent currently. “Excise tax rates on metallic and non-metallic minerals and quarry resources were last amended through Republic Act No. 7729 of 1994,” read a brief provided by Mr. Angara’s office.

In the wake of news of this latest amendment, introduced last Monday night, the mining and oil sectoral index performed the worst among the Philippine Stock Exchange’s (PSE) six sub-indices, dropping 615.65 points or 5.07% to 11,526.59.

SB 1592 already also increases the coal excise tax from P10 per metric ton (/MT) currently to P100/MT in the first year of implementation, P200/MT in the second year and P300/MT starting the third year.

Ronald S. Recidoro, executive director of the Chamber of Mines of the Philippines, said in a telephone interview that he “cannot comment yet” as the group has yet to study the final version.

SB 1592 also doubles prevailing documentary stamp tax rates on bank checks (to P3 from P1.50), sale or transfer of shares of stock (to P1.50 from P0.75), certificate of profit or interest in property transactions (to P1 from P0.50); increases the final tax on foreign currency deposit units to 15% from 7.5% and the capital gains tax for stocks not traded on the PSE to 15% from 5% or 10% currently; and imposes a 10% excise tax on cosmetic procedures “and body enhancements undertaken for aesthetic reasons”.

The donor’s and estate tax systems will also be simplified, with current rates reduced to a flat six percent of net donations for gifts exceeding P250,000 in value and of net value of estate, respectively.

Those add to lower personal income tax rates, whose projected foregone revenues will be offset by bigger collections from reduced value added tax exemptions, higher excise taxes on cars and on oil products, as well as an excise levy on sugar-sweetened drinks except milk, coffee as well as fruit and vegetable juice.

SB 1592’s approved version cuts to P130 billion projected revenues for the first year of implementation from P159.5 billion just last week, as well as compares to HB 5636’s P119.4 billion and the DoF proposal’s P149.6 billion.

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Reply build build

Government boosts infra spending 18% in Oct

Government spending on infrastructure projects went up to P51.5 billion in October this year, data from the Department of Budget and Management (DBM) showed.

Based on the DBM's National Government Disbursement Performance report, infrastructure spending in October rose 17.8 percent from P43.7 billion in the same month in 2016.

The DBM attributed the increase in infrastructure expenditures to the completion of public work projects – such as road repair, upgrading and widening; flood control; and rehabilitation of dike systems – and the acquisition of transport equipment of the Department of Interior and Local Government (DILG) under its Capability Enhancement Program.

The hike was also due to the payment for various communication, navigational and air traffic management system projects, as well as consultancy and civil works for the Light Rail Transit (LRT) Lines 1 and 2 extension projects of the Department of Transportation.

On a year-to-date basis, infrastructure expenditures in the 10 months to October stood at P442.7 billion, 11.8 percent more than the P395.8 billion level last year.

The DBM said infrastructure spending during the 10-month period was boosted by road infrastructure projects, the modernization program of the Armed Forces of the Philippines, as well as other capital outlays of the Department of Education, state universities and colleges, and the Department of Health.

Business ( Article MRec ), pagematch: 1, sectionmatch: 1
Infrastructure projects form part of the government's capital outlays, which went up 10.4 percent to P60.6 billion in October from P54.9 billion in the same month in 2016.

Other forms of capital outlays include equities – or investments of the national government in the authorized capital stock of state corporations – and capital transfer to local government units.

Investment in equities, for its part, reached P100 million in October, while capital transfer to LGUs declined 19.6 percent to P9 billion.

The Duterte administration vowed to accelerate public spending, particularly in infrastructure to sustain economic growth, encourage investments and create jobs.

According to the DBM, investments in infrastructure projects are expected to remain upbeat in the remaining months of the year.

In particular, the Department of Public Works and Highways is seen to accelerate disbursements to pay for completed road projects. Capital outlays of the Department of National Defense and the DILG are also expected to buoy spending in the last quarter.

Based on data from the Bureau of the Treasury, total expenditures of the national government, including infrastructure, climbed 10 percent to P2.24 trillion as of end-October from P2.04 trillion in the same period in 2016.

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...PHL remains on an upbeat setting for these financial intitutions

Nomura raises 2018 PH growth forecast

Japanese financial giant Nomura has raised its 2018 growth forecast for the Philippines while projecting four interest rate increases next year on expectations that the inflation rate could exceed the government’s target range.

In a Dec. 7 report titled “Asia in 2018: Stretching the sweet spot,” Nomura said that it was most upbeat on economic prospects for the Philippines, India and Indonesia next year.

In the case of the Philippines, Nomura said it still viewed the growth outlook as solid and raised its 2018 gross domestic product (GDP) growth forecast slightly to 6.9 percent from 6.8 percent earlier and from 6.7 percent in 2017.

“We also expect growth to rise further to 7.1 percent in 2019. A pick-up in global growth and the tech cycle, which looks like it can remain on an upswing longer than we initially anticipated, should supplement already strong domestic demand conditions,” Nomura added.

Nomura expects the Duterte administration’s ambitious “Build, Build, Build” infrastructure program and comprehensive tax reform to sustain robust economic growth in 2018.

“For next year, despite a likely increase in political noise, we expect the government’s focus on reforms to remain strong, alongside its drive to raise infrastructure spending further, which will be boosted by the reconstruction in Mindanao following the prolonged antiterrorism military operations in Marawi,“ according to Nomura.

Also, it said the implementation of the first package of tax reforms at the beginning of 2018 would not only provide the government with significant revenues for infrastructure and social spending, but it should also boost disposable incomes of the middle class via substantial personal income tax cuts.

“Beyond that, policymakers remain firmly committed to pushing a broader set of complementary reforms such as streamlining the budget process, local government capacity building, new monitoring systems for infrastructure projects and improving financial inclusion. These in our view are underappreciated, and should ultimately help increase investment-to-GDP ratios toward levels that Asian tigers have reached in the past to sustain high GDP growth rates and raise per capita incomes,” it added.

Nomura nonetheless flagged risks to the inflation outlook next year as it jacked up its forecast to 4.3 percent from 3.9 percent previously, hence breaching the government’s 2-4 percent target for 2018.

“This forecast is partly driven by our new 2018 oil price assumption ($65 a barrel), combined with the impact of tax reform (assuming the House version is adopted) and the output gap becoming more positive despite potential growth rising to an estimated 6.2 percent,” Nomura explained.

“We think the BSP will not be able to look through the risk of headline inflation breaching its target in 2018. As a result, we now expect the BSP to hike its policy rate by a total 100 basis points to 4 percent at a rate of one 25-basis point hike per quarter,” Nomura said.

In 2014—the last time the BSP hiked rates—Nomura said it was all about inflation risks, with the rate increases characterized by the BSP as a “preemptive response” to the balance of risks around inflation experiencing a further upward shift and put the target at risk. “We think demand-side pressures are even stronger today than in 2014 and this inflation expectations are also likely to accelerate amid supply-side increases from oil prices and tax reforms,” Nomura noted.

While generally bullish about the economy, Nomura said the key risks to its view continued to emanate from the domestic political environment, even though it argued that these risks had dissipated from last year, when the uncertainty around the war on drugs was complicated by foreign policy issues.

“President Donald Trump’s recent visit to Manila reaffirms our view that US ties remain strong. We will also watch closely President Duterte’s popularity ratings—results from more recent surveys have been more mixed, which is a departure from his uniformly high popularity ratings previously—particularly ahead of the 2019 midterm elections. If his control over Congress wanes, it could have implications for future phases of tax reform,” it said.

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Fitch upgrades PH credit rating

Global debt watcher Fitch Ratings Inc. upgraded the Philippines’ sovereign credit rating to “BBB” from the minimum investment grade of “BBB-,” providing an endorsement of President Rodrigo Duterte’s economic plans, which include a tax reform aimed at strengthening the fiscal outlook. 

“The Duterte administration welcomes the good news of the credit upgrade by Fitch Ratings,” said Budget Secretary Benjamin Diokno. “The upgrade supports the growing consensus that the Philippines is one of the fastest growing countries not only in the fast-growing Asia Pacific region but also in the entire world.”

Credit ratings assess the default risk of a prospective debtor, providing guidance to investors, corporations and governments worldwide. “The improved credit rating of the Philippines will therefore enhance the government’s access to financing and potentially present more favorable terms and conditions for future loans,” the Budget Department said.

The upgrade puts the Philippines on par with Italy and ahead of Indonesia.  It came more than four years since Fitch gave the Philippines its very first investment grade in March 2013. The upgrade also put Fitch Ratings’ score at par with those of Moody’s Investors Service and S&P Global Ratings.

The new rating is assigned a “stable” outlook, which means there are no pressing factors that could trigger an adjustment within the near term.

Fitch said the “Philippines’ strong and consistent  macroeconomic performance has continued and underpinned by sound policies that are supporting high and sustainable growth rates.”

Despite the controversy over Duterte’s bloody anti-drug war, Fitch said there’s no evidence it’s undermined investor confidence. The economy is set to remain one of the fastest expanding in Asia with growth of 6.8 percent next year and in 2019, the ratings company said.

Finance Secretary Carlos Dominguez III said the government was pleased that Fitch was finally convinced that the Philippine economy was much stronger now and more resilient than in 2013, when it granted the Philippines its first investment grade rating of BBB.

“Our macroeconomic fundamentals are on par with, if not better than, those of higher-rated sovereigns and continue to improve. Our economic growth in recent years has been one of the fastest in the region and among our rating peers,” Dominguez said.

“While we are not targeting ratings per se, I am confident that with these reforms, there will be more positive rating actions in the next couple of years,” Dominguez said. With Bloomberg

Economic Planning Secretary and National Economic Development Authority Ernesto Pernia said the latest Fitch action would augur well for the economy in general.  “Great news... that will only have more positive effect on the economy,” Pernia said.

Fitch also recognized the prudence of the appointment of Nestor Espenilla Jr. as the new head of Bangko Sentral ng Pilipinas.  Espenilla, who assumed the BSP’s top post in July, has been a career central banker for over 30 years now.

“The recent appointment of the new central bank Governor from within the Bangko Sentral ng Pilipinas has provided continuity and supports monetary policy credibility,” Fitch said. 

Espenilla said the rating upgrade from Fitch was a recognition of the positive transformation that was taking place in the Philippines.  

“The productive capacity of the economy is expanding. This is making possible higher GDP growth that is sustainable. Inflation is low and stable while the balance of payments remains very manageable. The domestic financial system’s resources and profitability have continued to increase, governance standards and risk management systems have been enhanced, and significant inroads toward financial inclusion is being achieved,” Espenilla said said. 

“We expect this virtuous cycle to continue. BSP will remain committed to our crucial mandate of price and financial stability, which are necessary to further accelerate economic growth in the country.  At the same time, we will vigorously pursue game-changing financial sector reforms that support economic growth and to ensure that the benefits of a fast- growing economy are felt by more Filipinos,” Espenilla said. With Bloomberg

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NEDA eyes 6 big infra project rollouts, 8% GDP growth in 2018

Filipinos can look forward to some much-awaited infrastructure projects finally breaking ground in 2018, and bringing even stronger economic growth, if the expectations of the National Economic and Development Authority (NEDA) hold true.

Next year is when the effects of the Build, Build, Build program are expected to take shape. According to Socioeconomic Planning Secretary Ernesto Pernia, Filipinos can expect the rollout of half a dozen major projects within the next few months.

These projects include the Clark International Airport expansion which will break gound next week, the Metro Manila Subway Project, the extension of the Malolos-Clark Railway Project, and Phase 1 of the Mindanao Railway Project which would encompass the Tagum-Davao-Digos Segment.

Non-transport projects set for rollout next year include the Kaliwa Dam Project and the Cavite Industrial Area Flood Risk Management Project.

Beyond those set for rollout, NEDA is eyeing 26 more projects, including 3 projects that could be approved before the end of the year for a total of P1 trillion.

By comparison, NEDA has gotten 20 projects approved in 2017.

The government is also set to raise its public spending from 5.2% of gross domestic product (GDP) to 6.2% next year.

But the government hit a bit of a snag since the target revenue from the Tax Reform for Acceleration and Inclusion (TRAIN) bill has gone down. The tax reform bill is one of the sources for infrastructure funding.

While the measure is now up for President Rodrigo Duterte's signature, it has a new target revenue of P130 billion from the original estimate of P167 billion.

Pernia, however, said the government's economic managers have already factored this in.

"We have already anticipated that there would be reductions from earlier expected revenue generation the reform would bring. We will have to do some borrowing, selling bonds, and the DOF (Department of Finance) is already planning Panda. These things have all been taken into account in our revenue and financing plans," he said.

The NEDA chief is also adamant that the country has the capacity to roll out major projects almost simultaneously.

"I think the implementation departments are prepared to bring labor and material and engineering design. We are also going to advertise jobs that are going to be available next year and I'm sure they will be more attractive than normal jobs because they will be 24 hours, 7 days a week so there will be many job opportunities," he added.

Spurring growth

NEDA noted that this surge in spending would also provide a big boost to next year's economic growth. The government is aiming for a 7% to 8% increase in GDP for 2018.

Pernia is similarly optimistic that there would be a strong showing in the 4th quarter of 2017, following better than expected results in the 3rd quarter.

"I think Q4 will hit 7% growth or a bit high.... To hit 8% full-year growth, however, we need 8% growth for the 4th quarter which would be hard," Pernia said, adding that GDP growth in the range of 6.8% or 6.9% was more reasonable.

The government's official target range for this year remains between 6.5% and 7.5%. 

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World Bank raises PH growth forecast for 2017 to 6.7%

Following the faster-than-expected gross domestic product (GDP) expansion in the third quarter, the World Bank has raised its growth forecast for the Philippines to 6.7 percent.

The Washington-based multilateral lender said the upgrade from the previous projection of 6.6 percent was made as part of its quarterly forecast exercise to reflect recent economic trends.

“Following a stronger-than-expected growth of 6.9 percent in third quarter and a revision of GDP growth for the second quarter, from 6.5 to 6.7 percent, the World Bank projects 6.7 percent growth for 2017,” it said.

The revised 2017 growth forecast remained within the government’s target range of 6.5-7.5 percent.

The World Bank retained its 2018 growth projection for the Philippines of 6.7 percent, still below the government’s 7-8 percent yearly target until 2022.

Continued global economic recovery gaining steam has led to higher-than-expected export growth for the Philippines and an encouraging upturn for the third quarter of 2017, World Bank lead economist for the Philippines Birgit Hansl said.

“The simultaneous recovery in major advanced economies and in developing economies is boosting global trade. For the Philippines, it means stronger import demand from the country’s main trading partners such as the United States, Japan and Europe,” the World Bank said.

Moving forward, if investment growth accelerates faster along with increased spending in public infrastructure, economic expansion could be even higher in 2017 and 2018 and exceed the current projection of 6.7 percent, Hansl said.

In October, the World Bank cut its growth forecasts for the Philippines for both 2017 and 2018 due to “slower than expected” implementation of public infrastructure projects so far.

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Anything wrong with our market? DJIA is soaring, PSEI is losing.
...we are expensive na daw..too much political noise
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