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The Philippine economy expanded by 6% in the third quarter, slightly faster than initially reported, according to the Philippine Statistics Authority (PSA).

The PSA upwardly revised the country’s gross domestic product (GDP) growth rate to 6% from the 5.9% reported in November last year.

This brought the growth in the first three quarters to 5.6% from 5.5% initial estimate.

The upward revision came ahead of the fourth-quarter and full-year 2023 release of GDP data today (Jan. 31).

Philippine GDP likely expanded by 5.7% in the fourth quarter, based on a BusinessWorld poll of 20 economists. If realized, this would be a tad slower than the third quarter’s revised pace and the 7.1% growth in the final three months of 2022.

The BusinessWorld poll yielded a 5.5% full-year estimate, falling below the government’s 6-7% target growth for 2023.

Should this materialize, it would be slower than the 7.6% growth recorded in 2022.

To meet the lower end of the government target, the Philippine economy should have expanded by at least 7.2% in the fourth quarter.

The PSA said that the main sources of upward revision of the third-quarter print were manufacturing (5.1% from 4.5%), financial and insurance activities (9.6% from 9.5%), and accommodation and food service activities (21% from 20%).

On the expenditure side, private consumption’s third-quarter growth was revised upwards to 5.1% from 5% previously. Government spending was maintained at 6.7%.

Meanwhile, the net primary income from the rest of the world was revised downwards to 111.6% from the preliminary 112.5%.

On the other hand, gross national income for the third quarter was kept at 12.1%.

National account revisions are based on approved revision policy, which is consistent with international standard practice, the PSA said. — Andrea C. Abestano

The Bureau of Internal Revenue (BIR) on Monday clarified that small online sellers are exempted from the payment of the creditable withholding tax imposed on online marketplaces but would still need to register their business.

“Small-scale online sellers are exempted from withholding tax. The BIR is sympathetic to small businesses in its approach to taxing online sellers/merchants,” BIR Commissioner Romeo D. Lumagui, Jr. said in a statement.

BIR Revenue Regulations No. 16-2023, which took effect on Jan. 11, imposes a withholding tax of 1% on one-half of the gross remittances by e-marketplace operators and digital financial service providers to the sellers or mer-chants for the goods and services paid or sold through their platforms or facilities.

The BIR said that the withholding tax is not imposed if the annual total gross remittances to an online seller for the past taxable year has not exceeded PHP 500,000; if the cumulative gross remittances to an online seller in a taxable year has not yet exceeded PHP 500,000 or if the seller is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty.

“For those who are above the threshold of PHP 500,000 annual gross remittance, it is only fair that they will be subjected to withholding tax. We have to be fair to the retail sector and brick and mortar stores who are regularly pay-ing their taxes,” Mr. Lumagui said.

The tax covers marketplaces for online shopping, food delivery platforms, platforms to book lodging accommodations, and other similar online service or product marketplaces.

E-marketplace operators and digital financial service providers were given a 90-day transitory period to comply with the order.

The BIR in a separate circular said all online sellers and merchants need to register with the BIR and submit documentary requirements, even if their annual gross remittance is below the PHP 500,000 threshold.

The circular also noted that sellers and merchants are not allowed to receive payments through a personal account and instead must use a BIR-registered account.

“If you have a business, you have to register and pay your taxes. It doesn’t matter if it’s an actual store or an online store. It is your responsibility to pay taxes like everyone else,” Mr. Lumagui said.

In a press conference last week, Mr. Lumagui told reporters that the measure will help the BIR better gauge the impact of the digital economy.

“We gave the online platforms a grace period of 90 days. With that, we are still checking on which are already capable of complying… During our discussions with online platforms, they’re cooperative. With this development, we’re hoping to get the entire picture on online transactions,” he said.

In 2022, the digital economy contributed PHP 2.08 trillion or equivalent to 9.4% of the gross domestic product.

A report by Google, Temasek Holdings and Bain & Company showed that the Philippines’ digital economy is projected to reach as high as USD 150 billion by 2030.

The BIR also earlier clarified that the withholding tax is not a “new” tax as it is just a measure that will allow for an advance payment of income tax.

“The BIR has a friendly and approachable stance as regards the taxation of online sellers. We know that most of our online sellers do not have the intention to evade taxes. They just need guidance in the registration and pay-ment processes,” Mr. Lumagui said.

He also said the BIR is working to provide guidance to online sellers and online platforms on their tax obligations. — Luisa Maria Jacinta C. Jocson

More than half of retail payments in the Philippines will be done digitally this year amid the growing adoption of online solutions, Filipino financial technology (fintech) firm Mochi said.

Mochi, a startup that specializes in invoicing and billing solutions, said in a statement on Monday that they see continued growth in digital payments this year.

“The projections of Philippine-based fintech startup Mochi suggest that 67% of retail payments in the country will be digital this 2024. This figure was derived from the 43% average year-on-year growth rate of digital retail pay-ments from 2019 to 2022 released by the Bangko Sentral ng Pilipinas (BSP) while considering the post-pandemic slowdown of said growth rate,” the company said.

The increased adoption of online payment solutions, the expansion of small and medium enterprises (SMEs), and the recovery in economic activity following the coronavirus pandemic will drive digital payments, Mochi said.

“Digital payments remained strong post-pandemic despite the slowdown,” Mochi Co-Founder and Chief Executive Officer Yroen Guaya Melgar was quoted as saying.

“With more than 90% of businesses in the Philippines being small businesses, it’s no wonder they’ve become champions of the digitization of financial services,” she said.

Based on latest data from the BSP, the share of online payments in the total volume of retail transactions in the country rose to 42.1% in 2022 from 30.3% a year earlier.

The total payment volume stood at 4.85 billion in 2022, with those done via digital platforms totaling 2.04 billion transactions. The top contributors for the increase in volume were merchant payments, person-to-person trans-fers, and salaries and wage payments.

According to central bank officials, the country was on track to meet its goal to have 50% of total retail transactions done digitally at end-2023. The next digital payments report of the BSP will be released in July this year.

However, the rise in online payments may also negatively affect SMEs as digitalization calls for these firms to be vigilant against fraud, miscalculations, and productivity bottlenecks, Mochi said.

“As an accounts receivable platform, Mochi is excited to help more SMEs manage the growing number of digital payments that they are receiving,” Ms. Melgar said.

“With digital invoice creation, integrated payment channels, and automated reminders, SMEs can be assured that the digital payments they are receiving will be more easily managed,” she added.

Under the Philippine Development Plan, the government wants 60-70% of retail payment transactions done online by 2028. — K.B. Ta-asan

Top executives of Philippine banks see continued growth in the industry this year, as expected policy rate cuts from the Bangko Sentral ng Pilipinas (BSP) in the second half may spur consumer and loan demand.

“I think this is a good year for the banks,” Bank of the Philippine Islands (BPI) President and Chief Executive Officer (CEO) Jose Teodoro K. Limcaoco told reporters during the central bank’s Annual Reception for the Banking Community on Friday.

He noted the Philippines has a more positive economic outlook compared with the rest of the Association of Southeast Asian Nations (ASEAN) member countries.

“When you look at the forecasts, we have the highest forecast of GDP (gross domestic product) among the ASEAN economies,” Mr. Limcaoco said.

Multilateral institutions such as the World Bank and the ASEAN+3 Macroeconomic Research Office (AMRO) project the Philippines to grow by 5.8% and 6.3%, respectively, making it the fastest-growing economy in the region this year. However, both projections are below the Philippine government’s 6.5-7.5% GDP target for 2024.

“And since inflation is under control, it seems confidence is high in the banking sector. We’ve been beginning to see borrowers come back with interest,” Mr. Limcaoco said.

Headline inflation stood at 3.9% in December, which brought full-year inflation to 6% in 2023. This is the second straight year that inflation breached the BSP’s 2-4% target band.

Meanwhile, Rizal Commercial Banking Corp. (RCBC) President and CEO Eugene S. Acevedo said there should be better opportunities this year, especially as inflationary pressures have significantly diminished and the BSP is ex-pected to start easing policy.

“My opinion is not very different from the general opinion. We’re seeing roughly 100 basis points (bps) (worth of cuts) by the end of the year,” Mr. Acevedo told BusinessWorld.

He said the BSP may start cutting interest rates in the second semester or in the third quarter this year.

“What is more important is that there seems to be a consensus as to the direction and magnitude of the (rate) reduction,” he said.

The Philippine central bank has raised rates by a cumulative 450 bps from May 2022 to October 2023, bringing the benchmark rate to a 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. also earlier signaled that policy easing is likely within the year, but not in the first six months due to risks to the inflation outlook.

“I’m hopeful that we’re going to see an increase in the demand for banking services, especially in loans as interest rates are coming down,” RCBC’s Mr. Acevedo said.

Based on the latest data from the central bank, outstanding loans issued by big banks increased by 7% year on year to P11.4 trillion in November 2023.

According to Mr. Limcaoco, market players postponed most of their business and investment decisions and were waiting for borrowing costs to come down.

“Now, they have decided we need to borrow already, or they say, things might be coming down by the second half. We believe rates will come down in the second half,” he said.

The BPI president and CEO noted that despite high interest rates, consumer spending remains robust and strong, especially with credit card billings.

“When you look at credit losses, it’s very controllable. Nonperforming loans (NPLs) are very manageable. It looks like 2024 will be a good year,” Mr. Limcaoco added.

Separate BSP data showed banks’ NPL ratio stood at 3.41% in November, easing from 3.44% in October but still above 3.35% a year prior. It marked the lowest in two months or since 3.4% logged in September.

“Interest rates are on the way down. This will help the regular consumer. Our economy is one of the fastest growing in Southeast Asia, and this is going to be a great year,” Union Bank of the Philippines President and CEO Edwin R. Bautista told BusinessWorld.

The Monetary Board’s first policy review is on Feb. 15.

RISKS TO THE OUTLOOK

BPI’s Mr. Limcaoco said uncertainties surrounding the global economy and rising geopolitical risks may affect the growth outlook for the Philippines this year.

“The issues over the Suez Canal, that might cause some trade costs to rise, but really its political and there’s nothing we can do. We just sit and watch,” he said, referring to the series of attacks by Houthi rebels on civilian ships in the Red Sea that has disrupted global trade.

Metropolitan Bank & Trust Co. President and CEO Fabian S. Dee said he hopes the external shocks would not affect the Philippines that much.

“We now have such a good story,” he said in mixed English and Filipino. “Inflation is going down… I think we have a good year ahead of us. I just hope it’s quiet in the Middle East.”

Meanwhile, the BSP is expected to wait for future policy moves from the US Federal Reserve, East West Banking Corp. CEO Jerry G. Ngo said.

“I think the Fed (will cut) maybe in the second half this year,” he told BusinessWorld. “But the numbers are not clear either way. I think we need to get used to higher for longer.”

The US central bank hiked the Fed funds rate by 525 bps from March 2022 to July 2023, bringing its target Fed funds rate to the 5.25-5.5% range.

Mr. Ngo said the BSP will mirror the Fed’s policy rate cuts this year.

“We cannot be too detached because it affects the foreign exchange (FX) rates at the end of the day, and the FX rates are at a particular band also,” he said.

The peso hit an all-time low of P59 against the dollar in October 2022, as the US Fed and the BSP delivered aggressive interest rate hikes during that time.

The local unit closed at P56.27 per dollar on Monday, strengthening by two centavos from its P56.29 finish on Friday, Bankers Association of the Philippines data showed. — By Keisha B. Ta-asan and Aaron Michael C. Sy, Reporters