PHILIPPINE officials are holding on to strong support for investment growth and tax reforms, Citi regional economist Nalin Chutchotitham has noted, after meeting officials from the Bangko Sentral ng Pilipinas (BSP) and other government bodies.
Tax incentives are set to be tweaked under a new corporate tax reform package dubbed “Trabaho” - or “jobs” - even amid concerns that some companies in special economic zones, as well as multinationals’ regional operating headquarters, could be hit by higher taxes, she wrote.
But the Philippine authorities believe that new investors should not be affected, while fears of job losses could be overblown, said Ms Nalin.
“Officials are of the opinion that firms do not only consider investment incentives when they come to the Philippines, but also other strengths of the economy - for example, its talent, relative labour costs and availability, domestic demand strength, etc,” she said in her report, in the wake of her meeting with Board of Investment representatives.
Ms Nalin also said that government agencies are holding out for Philippine companies to benefit from lower tax rates and “a fairer playing field”, such as for domestically-oriented manufacturers.
Foreign direct investment (FDI) appears positive, with rising in-flows especially from Asia and Europe, “but whether it would continue to be sufficient to offset the rising imports would be another factor to watch out for”, she added.
Citi identified manufacturing, financial services, real estate, recreation and art, and electricity and steam power as the top five sectors that are attracting investment.
The boost to factories and financials is “well in line with the high capacity utilisation rate of the manufacturing sector and banks’ credit growth, which also suggest positive outlook for domestic demand growth potential”, Ms Nalin said.
“For the medium run at least, FDI should continue to stay fairly robust alongside growing domestic demand.”
Meanwhile, the BSP is unlikely to move for large rate hikes, on the belief that inflation is being led by supply-side factors such as rice, she said.
“In our view, one risk factor which officials have less confidence about is energy prices, given volatility in the crude oil prices,” Ms Nalin added. “Overall, it appeared to us that the BSP would remain ‘data-dependent’ with regard to its future rate hike decisions. Nevertheless, it had not shown an inclination to a more ‘pre-emptive’ policy stance.