December
2, 2018 | 10:22 pm
Introspective
By Romeo
L. Bernardo and Marie Christine Tang
I am
pleased to share with readers the executive summary of our quarterly economic
outlook report for GlobalSource Partners (globalsourcepartners.com)
written by Marie Christine Tang and me last Nov. 22, 2018. The second part of
this column is a statement of the Foundation for Economic Freedom supporting
TRAIN 3, on property valuation for taxation purposes issued Nov. 30, 2018.
Local
moods have soured over the past several months as inflation rose, economic
growth slackened, the trade deficit ballooned, the peso fell and asset returns
dropped. The string of bad news may be traced to: global events, particularly
the triple whammy of US monetary tightening, surging oil prices and an
escalating US-China trade war, that have contributed to risk-off sentiments; as
well as domestic developments, particularly the badly managed rice import
policy and the many chokepoints caused by lagging infrastructure that have led
to the economy’s greater import dependence.
More
recent news of stabilizing world oil prices and easing local inflation have
given rise to hopes that the worst may be over. Indeed, optimists are apt to
bet that slower US growth would reduce the number of Fed rate hikes going
forward, that the US and China are likely to reach some agreement to ward off
the imposition of even higher tariffs next year, and that locally, not only
would the visit of President Xi Jinping speed up execution of China-funded infrastructure
projects and deepen trade and investment ties in other areas but a new law
freeing up rice imports would send prices of the basic food staple down. Should
these happen, as the argument goes, emerging markets would benefit from
improved financial market sentiments and risk appetites that would bring about
a virtuous cycle of capital flows and asset price recoveries and face lower
risk of a trade-related China slowdown and its adverse knock-on effects on
regional growth; separately, the Philippines would gain from expanding trade
and investments with China, and the specter of rising inflation would recede
from consumers’ memories, raising confidence anew.
Wishful
thinking? Rosy certainly and in the event, the headwinds are unlikely to
disappear completely. As it is, oil prices are still projected to remain at
current high levels, the US Fed is still on course to tighten once more this
year and anywhere from 50 to 100bp next year, a high degree of uncertainty
surrounds the US-China trade dispute where both sides appear prepared to set
aside WTO rules, and locally, most Filipinos continue to eye the rewards of
Chinese projects with suspicion, including opportunities for job creation, and
with regards to the proposed law to “tariffy” rice, it remains unclear at this
point whether it would truly free up rice trade.
Moreover,
election season lasting through May 2019 is upon the Philippines during which
time, work on the executive’s tax reform proposals, particularly the unpopular
Package 2 dealing with corporate investment incentives, is widely expected to
be put on hold, keeping investors in suspense about the future corporate tax
regime. In the meantime, any boost to domestic demand from election spending
may simply translate into higher imports, especially with all the construction
works spurred by public spending adding to the economy’s chokepoints in the
interim. As well, second round impacts from all the supply shocks this year are
still working their way through the economy and expected to keep inflation
outside monetary authorities’ target band through mid-2019.
All things
considered, the Philippine growth outlook is still a good one. Our baseline
view forecasts GDP growth remaining above 6% in the next 12 months, among the
highest in the region However, the downslide in output growth would continue in
the face of external headwinds and internal supply bottlenecks. Upsides to
growth include better than expected exports of both goods and services,
including tourism, as well as lower inflation, particularly rice prices.
Downsides include an escalating trade war, more by way of confidence than
direct trade impact which is expected to be manageable, and a multiplicity of
geopolitical risks, including another runup in oil prices.
FEF
STATEMENT ON THE VALUATION REFORM ACT
We, the Foundation for Economic Freedom, support the proposed amendments to the country’s real property valuation system under Package 3 of the government’s Comprehensive Tax Reform Program.
The main
objective of Package 3 is to develop and maintain an equitable and efficient
real property valuation system.
It will
address the present problem of multiple, overlapping valuations through the
adoption of a uniform valuation standard and establishment of a single
valuation base for taxation purposes.
Conflicting
land values result in right-of-way compensation problems — leading to delays in
implementation of government infrastructure projects and additional costs to
the government.
It also
will make the Bureau of Local Government Finance (BLGF) to develop and maintain
implementation of uniform valuation standards in compliance with international
best practices, under the Department of Finance (DoF) oversight while
assessment levels and tax setting will remain a function of the Sanggunian of
the Local Government Units (LGUs). Separating valuation from political bodies
will also ensure that the practice is free from undue politicization.
It will
further ensure timely updating of the Schedule of Market Values (SMVs). At
present, only 38.8% of LGUs and half of Regional Development Offices have
updated SMVs. Outdated and below market valuation means foregone government
revenues from property ownership and conveyances.
Setting up
of an electronic database on real property will ensure transparency and
accessibility of data.
On
average, real property taxes contribute around 31% of the LGUs local source of
income. The proposed reform will increase government revenues and at the same
time increase local autonomy as it will improve LGU financial self-sufficiency.
Package 3 does not intend to create and impose new taxes but rather improve
efficiency in real property tax collection.
Romeo L.
Bernardo is a Fellow of the Foundation for Economic Freedom and a Governor of
the Management Association of the Philippines. He was Finance Undersecretary
during the Corazon Aquino and Fidel Ramos administrations.
