Higher fuel tax will have minimal impact on inflation

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said the proposed imposition of higher excise tax on oil would stoke consumer prices over a two-year period after implementation.

BSP Deputy Governor Diwa Guinigundo said in a text message inflation could increase by 0.25 percentage points as a result of the higher excise tax on oil as part of the measures to be implemented by the Duterte administration to offset foregone revenues arising from the reduction in corporate and individual tax rates.

 “Should the initial plan of national government materialize, the average increase could be around P6 per liter and based on our preliminary assessment, could jack up inflation minimally by 0.25 percentage points in the next two years after implementation,” he said.

Finance Secretary Carlos Dominguez earlier said during the first hearing of the proposed P3.35 billion 2017 national budget the excise tax on oil products has not been adjusted since 1997.

Based on the comprehensive tax reform program turned over by former finance secretary Cesar Purisima to Dominguez, the Department of Finance (DOF) expects to raise P178 billion on the first year of implementation of higher excise tax on gas, diesel and other products.

The DOF is looking at increasing the excise tax on regular, leaded, unleaded and premium gasoline to P10 per liter from the current P4.35 per liter.

It also intends to slap an excise tax of P6 per liter on diesel asphalts, bunker fuel oil, denatured alcohol used for motive power, kerosene, LPG and processed gas. These products are currently exempted from excise tax.

 “Higher excise taxes on fuel would raise inflation but by how much would depend on the timing and the amount of the tax,” Guinigundo said.

Guinigundo said the expected 0.25 percentage point rise in inflation over the next two years as a result of the P6 per liter increase in excise tax on oil does not factor in the impact of higher transport fare as well as corresponding rise in food prices.

 “We still have to check the second round effects on transport fare, food and other commodities,” he said.

The BSP has set an inflation target of between two and four percent between 2016 and 2018. Inflation averaged 1.4 percent in the first seven months as the consumer price index remained unchanged at 1.9 percent in July.

During the last rate-setting meeting of the BSP, monetary authorities slashed its interest rate forecast to 1.8 percent instead of two percent this year and to 2.9 percent instead of 3.1 percent next year. The inflation projection of 2.6 percent for 2018 was retained.

Aside from the higher excise tax on oil, the finance department is looking at raising P164.4 billion from the expansion of its value added tax base from the removal of exemptions and zero-rated VAT as well as P33.8 billion from the rationalization of fiscal incentives.

It also hopes to raise P38 billion from the imposition of excise tax on sweetened products as well as fatty foods to encourage Filipinos to buy healthier food.