First posted 01:21am (Mla time) Nov 10, 2005
By Gil C. Cabacungan Jr.
Inquirer News Service
Editor's Note: Published on page A1 of the Nov. 10, 2005 issue of the Philippine Daily Inquirer
RAISING the value-added tax (VAT) rate from 10 percent to 12 percent by January next year will ignite a three-month rally of the peso and the stocks, according to market experts.
"Raising the VAT to 12 percent will solidify investors' view that this government is committed to putting its fiscal house in order and erase lingering doubts about the President's political resolve," said Jose Arnulfo "Wick" Veloso, treasurer of HSBC Philippines.
The British banking giant is the world's fifth largest in terms of assets.
"It will unleash a bull run across the board for at least three months," he said.
In the three-month burst of investor exuberance, Veloso expects the peso to hit the 52 to the dollar mark and interest rates on T-bills to go down by as much as one percentage point, or equivalent to P25 billion.
The VAT law, the centerpiece of President Gloria Macapagal-Arroyo's economic reform program, contains a provision empowering the President to raise the tax rate to 12 percent by Jan. 1 should the VAT collections as a percentage of the previous year's gross domestic product (GDP) exceed 2.8 percent or the national government deficit as a percentage of GDP exceed 1.5 percent.
Finance Secretary Margarito Teves had said that based on current performance, it was inevitable that Ms Arroyo would increase the tax rate. The tax is aimed at reducing the government's massive budget deficit.
'Flood of funds'
At the stock market, raising the VAT to 12 percent would jack up the Phisix, the key Philippine stock market barometer, by at least 25 percent to the 2,600 level or back to the bourse's peak in 1999, according to former Philippine Stock Exchange chair Wilson Sy.
"The move will unleash a flood of funds from portfolio managers hungry for a recovery play in the region. Investors will look at the Philippines in a different light," Sy said.
Largely because of the implementation of the expanded VAT on Nov. 1, Philippine stocks are now back on portfolio managers' radar screen after six years, according to Sy.
The stock market yesterday hit its highest level in eight months because of heavy foreign buying.
The imposition of the VAT on fuel and power and the increase in corporate income tax from 32 percent to 35 percent have buoyed up Swiss banking giant UBS' outlook on the Philippines.
It projects the peso to hit 54 by the end of the year and 53 by the end of the next. It also expects interest rates on Philippine foreign debt to drop nearly 2 percentage points.
Long ride on bull's back
The market euphoria could extend beyond three months, according to Veloso.
"After three months, investors would know by then whether the 12 percent VAT has translated to higher revenue collections. If it has, then the Philippines will be up for a very, very long ride on the back of the bulls."
Veloso said the market's exuberance could peak in the first full year of implementation of the 12 percent VAT when investors would have confirmed whether the tax was indeed the panacea for the government's chronic budget deficit.
"We expect a significant change in the market outlook, an inevitable upgrade in the country's credit rating," he said.
RAISING the value-added tax (VAT) rate from 10 percent to 12 percent by January next year will ignite a three-month rally of the peso and the stocks, according to market experts.
"Raising the VAT to 12 percent will solidify investors' view that this government is committed to putting its fiscal house in order and erase lingering doubts about the President's political resolve," said Jose Arnulfo "Wick" Veloso, treasurer of HSBC Philippines.
The British banking giant is the world's fifth largest in terms of assets.
"It will unleash a bull run across the board for at least three months," he said.
In the three-month burst of investor exuberance, Veloso expects the peso to hit the 52 to the dollar mark and interest rates on T-bills to go down by as much as one percentage point, or equivalent to P25 billion.
The VAT law, the centerpiece of President Gloria Macapagal-Arroyo's economic reform program, contains a provision empowering the President to raise the tax rate to 12 percent by Jan. 1 should the VAT collections as a percentage of the previous year's gross domestic product (GDP) exceed 2.8 percent or the national government deficit as a percentage of GDP exceed 1.5 percent.
Finance Secretary Margarito Teves had said that based on current performance, it was inevitable that Ms Arroyo would increase the tax rate. The tax is aimed at reducing the government's massive budget deficit.
'Flood of funds'
At the stock market, raising the VAT to 12 percent would jack up the Phisix, the key Philippine stock market barometer, by at least 25 percent to the 2,600 level or back to the bourse's peak in 1999, according to former Philippine Stock Exchange chair Wilson Sy.
"The move will unleash a flood of funds from portfolio managers hungry for a recovery play in the region. Investors will look at the Philippines in a different light," Sy said.
Largely because of the implementation of the expanded VAT on Nov. 1, Philippine stocks are now back on portfolio managers' radar screen after six years, according to Sy.
The stock market yesterday hit its highest level in eight months because of heavy foreign buying.
The imposition of the VAT on fuel and power and the increase in corporate income tax from 32 percent to 35 percent have buoyed up Swiss banking giant UBS' outlook on the Philippines.
It projects the peso to hit 54 by the end of the year and 53 by the end of the next. It also expects interest rates on Philippine foreign debt to drop nearly 2 percentage points.
Long ride on bull's back
The market euphoria could extend beyond three months, according to Veloso.
"After three months, investors would know by then whether the 12 percent VAT has translated to higher revenue collections. If it has, then the Philippines will be up for a very, very long ride on the back of the bulls."
Veloso said the market's exuberance could peak in the first full year of implementation of the 12 percent VAT when investors would have confirmed whether the tax was indeed the panacea for the government's chronic budget deficit.
"We expect a significant change in the market outlook, an inevitable upgrade in the country's credit rating," he said.
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