Inflation impact of new tax law minimal, says DOF

MANILA, Philippines — The newly enacted tax reform law may raise inflation by 0.7 percentage points in the first year of its implementation, a level which is considered “minimal and manageable,” according to the Department of Finance (DOF).

Finance Undersecretary Karl Kendrick Chua said the Tax Reform for Acceleration and Inclusion (TRAIN) Act—particularly the provision adjusting excise taxes on fuel—may put an upward pressure on the prices of commodities, and pull up inflation by about 0.7 percentage points.

“The DOF estimates that TRAIN can potentially increase inflation by up to 0.7 percentage points in 2018 due to higher oil prices. This is very minimal and manageable, especially compared to the savings from lower income taxes,” Chua said in his January 2018 inflation analysis.

In addition, Chua said TRAIN’s impact on inflation may taper off over time.

Chua said the DOF estimate was in line with the own figures of the Bangko Sentral ng Pilipinas (BSP) and the National Economic and Development Authority (NEDA).

Broken down, Chua said TRAIN may raise food inflation by 0.3 percentage points, and transportation costs by 0.1 percentage point. Price increases of other commodities are also expected to accelerate by 0.3 percentage points.

According to Chua, the DOF’s inflation estimate is supported by historical trends.

“Between January 2016 and January 2017, diesel  prices were up by almost 14 pesos, which is equivalent to an increase of 76 percent. However, inflation remained stable (2.7 percent), and food, transportation, and electricity, gas, housing, and water did not increase significantly,” he said.

Republic Act 10963 or the TRAIN Act, which contains Package 1A of the administration’s Comprehensive Tax Reform Program (CTRP), aims to simplify the country’s tax system by by lowering personal income tax rates.

It also seeks to adjust excise taxes of fuel, automobile, coal and sugar-sweetened beverages, and expand the tax base by removing value-added tax exemptions.