LONDON—The Philippines is looking forward to more investment flows from the United Kingdom (UK) amid the Duterte administration`s implementation of policy and infrastructure reforms at a pace that has transformed it into one of Asia`s fastest-growing economies, Finance Secretary Carlos Dominguez III has said here at an investment forum.
Dominguez expressed confidence that the economic partnership with the UK, which is among the Philippines’ 10 leading sources of foreign direct investments (FDIs), would grow in the years ahead, given that the British economy has been a reliable partner even when the Philippines was going through difficult challenges in the past.
"We are confident this partnership will grow even more as our economy emerges to take its place among the dynamic economies in a dynamic region," Dominguez said in his keynote speech on Tuesday (Sept. 25) at the Philippine Economic Briefing (PEB) held at the Four Seasons Hotel here.
Dominguez said he is optimistic that more investments from the UK would enter the Philippines in the coming years, “especially in the sunrise sectors of our economy.”
“These are exciting times for our economic development. We invite you to participate in building a strong and resilient economy,” Dominguez said during the PEB, which was well attended by members of the British business community.
Among those present at the event were British Ambassador to the Philippines Daniel Pruce, Philippine Ambassador to the UK Antonio Lagdameo, and top executives of Standard Chartered, UBS, Bank of China, J.P. Morgan, Citibank, Credit Suisse and Goldman Sachs; members of the UK-ASEAN Business Council; and members of the Philippine business sector.
The PEB is the key event in the three-day mission here of the Cabinet delegation led by Dominguez to brief British investors on the vast business opportunities in the Philippines’ infrastructure, energy and tourism sectors and to explore ways to expand economic cooperation between Manila and London.
Dominguez said improvements in the ease of doing business (EODB) along with other initiatives like the comprehensive tax reform program (CTRP) and an unprecedented infrastructure buildup--dubbed “Build, Build, Build”--has deepened investor confidence in the Philippines on the watch of President Duterte, leading to a 42.4 percent surge in net FDIs to $5.8 billion in the first half of 2018.
"This reflects stronger investor confidence in the Duterte administration’s decisiveness in pushing ahead with the economic reform agenda. This also dispels concerns that our tax reform is scaring away investors,” Dominguez said.
"Like the rest of the economies in the world, the Philippines is not exempted from challenges," he added. "But what differentiates our economy from many is the decisiveness, the extent, and the pace by which we are implementing policy and infrastructure reforms. We remain one of the best-performing economies in the region and our outlook is strong."
The Philippines also remains "on course" in accomplishing the Duterte administration`s medium-term goals, Dominguez said. These goals are: to reduce poverty incidence from 21.6 percent in 2015 to just 14 percent by 2022, to make growth more inclusive by addressing the infrastructure deficiencies that stymie productivity, and to induce more investments to open more jobs for the next generation of Filipinos.
He said the "adept management of our fiscal affairs" has also been recognized by way of "improved credit rating outlooks as well as the tight spreads given the foreign denominated bonds we have floated in the last few months."
"Confidence in our fiscal management is reinforced by the successful passage into law of our first tax reform package. This is the first time we are reforming our tax policies without being compelled to do so by some crisis or by creditors," Dominguez said.
He said a new tax reform law, which is the first package of CTRP, has produced immediate results, with the country`s main revenue agencies—the Bureaus of Internal Revenue (BIR) and of Customs (BOC)--"exceeding targets significantly."
Total revenue collection for the first eight months of this year was 19 percent higher than the same period last year. "The healthy revenue collections help us make the necessary economic investments to sustain our growth momentum long into the future," he said.
Meanwhile, 99 percent of individual taxpayers also now enjoy reductions in their personal income tax (PIT) rates.
"Filipinos earning below $4,500 annually are now exempted from paying personal income taxes while workers earning above it now receive about a month’s extra take-home pay each year from the deductions in their tax rates. To emphasize that point, by correcting the tax rate for our average wage earners, we have basically given out a 14th month pay," Dominguez said.
Dominguez pointed out that the most remarkable aspect of the country`s economic performance so far this year is its turn into an increasingly investment-led growth, following a 27.4-percent jump in capital formation—the most comprehensive gauge of investments—as President Duterte`s "Build, Build, Build" initiative continues to gain momentum.
The Finance chief said the Japan-supported Metro Manila Subway Project, which is the largest single infrastructure project that the Duterte administration will undertake, is one example of how the government is making sure its infrastructure investments are sound and are rolled out to benefit Filipinos at the soonest possible time.
This Metro subway project is one of the softest loan ever negotiated by the government, given that the $935 million (104.53 billion yen) loan agreement with Japan for the first tranche carries an interest rate of 10 basis points per annum for non-consulting services and 1 basis point per annum for consulting services, which are payable in 40 years inclusive of a 12-year grace period, he said.
“Those who say that we are walking into a debt trap ought to look more closely at the actual terms of the loan contracts we sign,” Dominguez said.
Dominguez noted that the Philippines’ national government expenditures increasing by 23 percent in the first seven months of this year represents improved capacity to execute priority projects.
The Philippines’ deficit-to-GDP ratio for the first half of this year amounting to 2.34 percent is well within the planned deficit ceiling of 3 percent of GDP up to 2022 to allow enough fiscal space to fund economic investments, Dominguez said.
From January to July this year, Philippine infrastructure spending increased by 47 percent compared to the same period last year, he said. The government aims to raise this level to about 7 percent of GDP by 2022, a dramatic increase from the average 2.6 percent of GDP in infrastructure investments over the last 50 years.
He also said that even with increased borrowing to finance investments, the country’s debt-to-GDP ratio is expected to fall from 42 percent in 2017 to 38 percent by 2022.
Complementing these factors is President Duterte’s "rebalancing of the country’s foreign policy," which has led to increased official development assistance (ODA) from the Philippines’ friends in the region, Dominguez said.
These include investment pledges and ODA from both Japan and China of about $9 billion each, and South Korea of up to $1 billion—which are supplemented by the support the Philippines is getting from multilateral development institutions.
On his watch, Dominguez said the Department of Finance (DOF) made history by collecting from a local cigarette manufacturer—Mighty Corp.—a total of $600 million for its non-payment of excise taxes and use of counterfeit tax stamps on its cigarette packs, which is the biggest sum on record raised by the government from a tax settlement.
He said the lasting result of this heightened joint campaign against tax cheats is the increased collection of excise taxes on cigarettes by an average of $50 million a month.
The excise tax on sugar-sweetened beverages (SSBs), which is meant to encourage healthier lifestyles among Filipinos, is providing the government additional revenues of almost $2 million a day.
Meanwhile, a second tax reform package that aims to reduce the corporate income tax (CIT) and rationalize fiscal incentives will create a level playing field for enterprises and attract new players to compete, along with benefiting thousands of small and medium enterprises (SMEs) that employ the biggest number of Filipinos, Dominguez said.
Other CTRP packages cover reforms in property valuation to make the system more equitable, efficient and transparent, as well as the rationalization of capital income taxation to address the multiple rates and different tax treatments and exemptions on capital income and other financial instruments, he added.