Global debt watcher Moody’s Investor Service said the Philippines is among developing countries in the Asia-Pacific region that will benefit from the implementation of tax reforms.
Moody’s conclusions are contained in its just-released report “Sovereigns—Developing Asia Pacific: Tax base broadening most likely to be effective in countries with strong tax administration.”
The report looked at the extent to which tax reforms are likely to support the sovereign credit profiles of 11 developing Asia Pacific economies that have underdeveloped tax systems. The 11 are Bangladesh, Cambodia, India, Indonesia, Maldives, Mongolia, Pakistan, the Philippines, Sri Lanka, Thailand, and Vietnam.
Moody’s said the tax reforms in developing Asia Pacific economies would help address the narrowness of revenue bases in some countries, but that many governments still face structural barriers to broadening these bases.
“For many sovereigns, measures to broaden the tax base are unlikely to boost fiscal strength unless accompanied by enhanced tax administration and measures that effectively manage expenditure growth,” Moody’s said.
It said by constraining revenue-generation potential, the narrow tax bases of many of these sovereigns increased their fiscal vulnerability, while also limiting the financial resources available to develop the social and infrastructure services needed for greater economic development.
“Moody’s expects such reforms will most likely address the narrow revenue bases present in fast-growing economies with improving expenditure and debt management, such as the Philippines [Baa2 stable], India [Baa2 stable], Indonesia [Baa2 stable] and Thailand [Baa1 stable],” it said.
Besides hurdles to tax administration, Moody’s said the relative concentration of the tax base on indirect taxes—such as value-added taxes— left governments vulnerable to pressure to grant exemptions for various special interests.
The Duterte administration is currently implementing the first package of the Comprehensive Tax Reform Program—also called Tax Reform for Acceleration and Inclusion—which was enacted into law in December 2017 and took effect in January.