Finance Secretary Carlos Dominguez III on Tuesday underscored the impact of the recent Supreme Court decision raising the coverage of the Internal Revenue allotment of Local Government Units (LGU) to include all national taxes, saying this could put pressure on the country’s fiscal position.

The finance chief stressed even the LGU must understand the decision “is not a simple matter and thus should be implemented with due care to ensure that the government maintains its strong fiscal position.”

“We should communicate that this issue is not a simple matter. Both Fitch and Moody’s have put a red flag as a warning regarding this Supreme Court ruling. They are fully aware of the (ruling’s) possible risks,” Dominguez said.

Based on the High Court’s ruling, the “just share” of LGU should be calculated and sourced from all national taxes—not just from the national internal revenue taxes.

But the finance secretary said this could mean the IRA arrears could reach P1 trillion to 1.5 trillion if the decision is retroactively implemented.

He is proposing the Development Budget Coordination Committee to deliberate on the issue for proper guidance.

The DBCC is comprised of Budget Secretary Benjamin Diokno, Socioeconomic Planning Secretary Ernesto Pernia, Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. and Executive Secretary Salvador Medialdea.

Last week, Fitch Ratings affirmed the Philippines’ investment-grade rating at “BBB” with a stable outlook, citing the country’s strong macroeconomic performance, growth in investments and private consumption.

“We expect domestic demand to maintain a strong growth of 6.8 percent in both 2019 and 2020 which would maintain the Philippines’ place among the fastest-growing economies in the Asia-Pacific region,” Fitch said in a press statement.

Three days later, Moody’s also maintained its Baa2 rating on the Philippines and maintained its stable outlook, citing the country’s “high economic strength derived from a large and fast-growing economy and improving fiscal strength based on moderate government debt levels and gains in debt affordability.”

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