MANILA — Philippines’ inflation rate ticked up anew in February 2018 but only a small part of it can be attributed to the impact of tax reform and that the poor is not greatly affected.
“TRAIN (Tax Reform for Acceleration and Inclusion) has begun to impact inflation as expected, though other factors are the bigger contributors to higher inflation,” Finance Undersecretary Karl Chua said in an analysis.
The tax reform is expected to contribute as much as eight percent hike in domestic inflation rate.
The government’s inflation target for 2017-19 is a range between two to four percent.
The rate of price increases in the second month this year registered a faster rate of 3.9 percent from last month’s 3.4 percent using the new base year of 2012 while using 2006 as base year it went up to 4.5 percent from month-ago’s four percent.
PSA started to rebase the inflation rate to 2012 from 2006 starting with the February 2018 report to ensure that the consumer price index (CPI) remains relevant to present times.
Chua said inflation in the National Capital Region (NCR) last February registered a faster rate of 4.7 percent compared to the 3.7 percent in areas outside NCR.
“This suggests that the poor and low-income households are less affected, as most of them reside outside NCR,” he said.
TRAIN, which took effect last January 1, cut workers’ income tax rates but hiked excise tax on fuel and introduced excise tax on sugar-sweetened beverages, among others, to address decline in revenues as a result of the lower personal income tax rates.
Citing DOF estimates, Chua said the expected price increase on non-alcoholic beverages as a result of TRAIN is 15 percent this year while it is 9.2 percent for electricity, gas and other fuels; eight percent on tobacco; seven percent on private transportation; and four percent on alcoholic beverages.
Philippine Statistics Authority (PSA) data show that according to the 2006-based CPI, inflation of non-alcoholic beverages posted a faster rate of 5.1 percent year-on-year in February, while alcoholic beverages’ is at 5.8 percent, tobacco, 24.8 percent; electricity, gas and other fuels, 6.2 percent; and private transportation, 7.2 percent.
Under the 2012 base year, inflation of non-alcoholic beverages during the same month is at 3.9 percent; alcoholic beverages, 5.1 percent; tobacco, 22.9 percent; electricity, gas and other fuels, 3.6 percent; private transportation, 14.5 percent.
Chua said inflation of tobacco remains elevated because of improved tax compliance, with the rate of price increases seen to remain up until September this year “as Mighty Tobacco, now under JTI, is now paying the right taxes.”
“If tobacco inflation were only eight percent, as the TRAIN law provides, then overall inflation would have gone down from 3.9 percent to 3.7 percent,” he said.
Under the amended Sin Tax Law, tax on tobacco should be four percent per pack starting this year.
Also, with excise tax on fuel up as a result of TRAIN, Chua said private vehicle owners have started to feel the tax reform’s impact but pointed out that “the bigger cause is the higher global crude oil price and the peso’s depreciation.”
He said owners of private vehicles paid 4.5 percent higher on fuel and other operating cost but pointed out that prices of Dubai crude oil rose 15.8 percent last February and the peso depreciated by 3.6 percent against the US dollar during the same period.
“On the other hand, public commuters paid only 2.9 percent more as most public utility vehicles have not adjusted their fares,” he said.
“Since prices of excisable products are growing as expected, the only reason for higher overall inflation is a combination of higher global crude price, the peso’s depreciation, and profiteering,” he added.
He assured the public that both the Department of Energy (DOE) and the Department of Trade and Industry (DTI) are closely monitoring price developments to prevent businesses from taking advantage of the TRAIN to take more profit.
He added that moderate increase in the inflation rate is expected and not alarming in a fast-growing economy.”
“Once market adjusts, we expect inflation to ease in the coming months with the average full-year inflation well within the target set by the BSP (Bangko Sentral ng Pilipinas),” he added. (PNA)
