Central bank exec sees inflation peaking in Q2
INFLATION should peak in the current quarter as food and commodity price pressures moderate, and further capital inflows that would support the peso were likely in coming months, a central bank deputy governor yesterday said."Inflation appears to be peaking in the second quarter but will start stabilizing in the second half," Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said in the Dealing Room, a Reuters Messaging chat room. "Commodity prices, including those for oil and some key commodities, are coming down. The weather shocks are easing. Demand from advanced economies remain weak." Mr. Guinigundo later told Reuters annual inflation in May "would not be as high as other segments of the market would expect." Still, he said it was too early to consider a pause in rate increases, adding an increase in reserve requirements was a policy option. "Until such time we see actual commodity, oil prices starting to ease and affecting general level of market prices, we should remain cautious and vigilant," he said. Inflation, spurred by higher commodity prices, rising wages and capacity constraints, has become the top policy priority for most Asian central banks, against the backdrop of comfortable momentum in domestic demand and economic growth. The BSP said it raised rates because its inflation target of 3-5% for this year was at risk. The two 25 basis points hikes for this year have taken the overnight borrowing rate to 4.5%. A Reuters poll last month showed most analysts expected at least one more 25 basis point increase this year, with some expecting the policy rate to rise to 5.25% by the end of 2011. The annual inflation rate has risen to a one-year high of 4.5% in April from 2.8% in October, and policy makers have said it could top 5% in coming months. Gains in the peso have helped mitigate inflation pressures from rising prices of oil and other commodities, with the currency supported by remittances from Filipinos overseas of $4.6 billion in the first quarter of 2011, 6% higher than a year earlier. Mr. Guinigundo noted the peso had not moved as fast as other Southeast Asian currencies, and said the Philippines was not attracting as much inflows as its neighbors. "While the current account receipts remain strong, they are seasonally more modest," he said. "We expect more inflows shortly. That would have a telling impact on the peso." -- Reuters
Fiscal incentives bill okayed by House panel
THE LONG-AWAITED fiscal incentives bill has been approved by a House of Representatives panel, paving the way for the priority measure’s possible approval later this year.
The proposed Investments and Incentives Code of the Philippines, passed by the House ways and means committee yesterday, overhauls the criteria by which businesses can qualify for tax breaks. Incentives will be granted to enterprises depending on whether they are export-oriented or domestic, with more benefits to be extended to the former, committee director Donald Z. Marasigan told BusinessWorld yesterday. "Export-oriented businesses generate foreign revenue and usually have bigger investments because they have to compete in the international market," Mr. Marasigan explained. Under the ways and means committee’s still-unnumbered bill, a consolidation of four House proposals, export enterprises can enjoy a six-year income tax holiday. They will afterwards be subject to only a 5% tax on gross income earned (GIE) for 19 years, in lieu of all national and local taxes except the real property tax on land owned by private developers. Exporters can also choose to avail of a 5% GIE for 25 years or a 50% reduction in their corporate income tax for 25 years. To qualify, 70% of the business’ production should be for export. Domestic enterprises, meanwhile, can choose from an income tax holiday of four years, a 15-year 50% corporate income tax cut or a four-year income tax holiday, to be followed by a 10% corporate income tax rate for 10 years if the business is located in 1st to 3rd class municipalities or 12 years for those in 4th to 6th class municipalities. Strategic domestic enterprises as identified by the government under the annual Investments Priorities Plan can enjoy expanded benefits. They are qualified for an income tax holiday of eight years and a 50% corporate income tax cut for 17 years afterwards. Domestic enterprises located in less developed areas can also qualify for tax perks. Businesses located in Mindanao and the 30 poorest provinces in the country can get a six-year income tax holiday then a 10% corporate income tax rate for 19 years. Companies can also opt for a 5% GIE for a period of 25 years. An Enhanced Net Operating Loss Carry-Over (NOLCO) provision, meanwhile, allows businesses to deduct net operating losses during the first five years of commercial operation from their gross income for the next five consecutive taxable years following the loss. "Plant, machinery and equipment that are reasonably needed and actually used for the production and transport of goods and services may be depreciated..." the proposed bill adds. Lastly, expenses incurred for local training given to employees for the development of necessary skills can also be deducted. The consolidated bill’s approval puts the measure on track for a September passage at the House of Representatives, as earlier targeted by ways and means committee chairman Rep. Hermilando I. Mandanas (2nd district, Batangas). "When Congress opens in July, the fiscal incentives bill will be put on the business for the day," Mr. Mandanas told BusinessWorldyesterday. The Senate ways and means committee is likewise eyeing approval of the priority measure within the year, Senator Ralph G. Recto has said. -- DCJJ | 
