MANILA, Philippines – A higher excise tax on oil under the proposed tax reform package of the Duterte administration could stoke up inflation by about one percentage point, a foreign bank economist said.
ING Bank Manila senior economist Joey Cuyegkeng said the bank’s projection is higher than the initial assessment of a 25 basis points rise in inflation set by the Bangko Sentral ng Pilipinas (BSP).
“We think that the full impact would be in the area of one percentage point increase in the inflation rate considering the substantial increase in retail prices of diesel, gasoline and kerosene. The effective price impact of the higher excise taxes is upward of 20 percent,” he said.
Earlier, BSP Deputy Governor Diwa Guinigundo said the P6 per liter increase in the pump prices of fuel products due to imposition of higher excise tax could raise inflation by 0.25 percentage point.
The proposed increase in excise tax on regular, leaded, unleaded and premium gasoline to P10 per liter from the current P4.35 as well as imposition of a P6 per liter excise tax on diesel asphalts, bunker fuel oil, denatured alcohol used for automotive power, kerosene, LPG and processed gas would yield P178 billion.
The projected increase in inflation by the BSP did not include second round effects on transport fare, food, and other commodities. The BSP has set an inflation target of two to four percent between 2016 and 2018.
“BSP warned that the full impact may be higher with second round effects including higher transport public fares, transport costs in the supply chain and other knock-on effects,” Cuyegkeng added.
The Duterte administration is looking at raising P566.4 billion from the proposed tax reforms to finance much-needed infrastructure, almost three times the expected P198.3 billion foregone taxes arising from revenue eroding measures.
Based on the proposed tax reform measures submitted to the Senate Ways and Means Committee, the Department of Finance (DOF) expects to generate a net yield of P368.1 billion over the next few years from the five packages.
The tax reform package is anchored on the gradual reduction of corporate and personal income tax rates to 25 percent over a three-year period. Domestic corporations are currently levied 30 percent while individuals pay between five and 32 percent depending on their taxable income.
To compensate for the projected P173.8 billion foregone revenues, the DOF is looking at offsetting measures that include the expansion of the value added tax (VAT) base by limiting the exemptions for senior citizens and persons with disabilities to food, health, and education; adjustment of marginal threshold for low income consumers and businesses; levy on sugary products; rationalization of valuation of properties; revisiting the sin tax imposed on tobacco and alcohol; imposition of luxury tax on motor vehicles, yachts, and jewelry; introduction of carbon tax, fatty food tax as well as lottery and casino tax; and mining taxes.