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Aquino Rejects Rating Agency's Call For New Taxes

by Mary Swire,, Hong Kong

29 June 2011

In an interview, Philippine President Benigno Aquino has dismissed a call from the credit rating agency, Standard and Poor’s (S&P), to impose new taxes, if the Philippines wants to achieve an investment grade rating.

S&P has predicated an investment grade rating for the Philippines on a widening of its tax base and a hike in tax rates to collect additional tax revenue, together with a reduction in government debt. It has pointed out that, while the country has made strides in the right direction, its tax revenues as a proportion of gross domestic product (GDP) remain low in relation to those other Asian countries with an investment grade rating.

However, when he assumed office in June last year, President Aquino stressed that, to reduce the country’s then-increasing fiscal deficit, the collection of taxes should be improved before there was to be any thought of increasing tax rates, or of any new taxes.

His latest reply has reiterated the fact that his government has, presently, no thoughts of additional taxation, and his belief that there are still significant increased revenues to be garnered by improving tax administration - by strengthening the authorities’ actions to collect unpaid taxes and chase tax evaders. In that case, only after such improved administration has run its course, would there be any thoughts of new or increased taxes.

In fact, the government’s effort to reduce the country’s budgetary shortfall has meant gradually bringing its fiscal deficit down from the 3.7% and 3.5% of GDP experienced in 2009 and 2010 respectively, to a target of 3.2% this year and 2.6% in 2012.

Nevertheless, it is also true that, without additional revenues, the Philippines’ tax-to-GDP percentage, while it has improved, will reach around 15% this year, and will still be only 16% in 2014.

Two of the major rating agencies, S&P and Moody’s, have a rating for the Philippines two notches below investment grade, while the third, Fitch, has approved a rating of only one notch below.

TAGS: tax | economics | fiscal policy | Philippines | tax rates | revenue statistics

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