Philippines: tax reforms a welcome step

President Duterte of the Philippines is on Tuesday set to sign into law a major package of tax reforms which would mark his most important legislative achievement since coming to office 17 months ago. The changes include reductions in income tax alongside hikes in indirect taxes on items such as fuel, automobiles and cigarettes. The increases in indirect taxes are likely to push up inflation. That said, the overall impact is likely to be relatively small given that the changes are set to be phased in over several years. The Department of Finance has estimated that the tax hikes will add 0.4%-points to the headline rate next year. The extra tax revenues, which are the equivalent of around 1% of GDP, will be used to fund the administration’s ambitious infrastructure spending plans. These projects should increase capacity, reduce bottlenecks in the economy and actually ease inflationary pressures over the medium term.