DOF insists inflation to stay manageable despite higher fuel tax

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While higher fuel taxes under House Bill (HB) 4774 or the proposed Tax Reform for Acceleration and Inclusion Act are inflationary, its impact on consumer prices will be manageable, the Department of Finance (DOF) said on Wednesday.

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“There are many concerns that this tax reform may increase prices. Our estimate is that if we account for the impact of higher diesel and gasoline on food, transportation, electricity and others, what we are actually seeing is only a moderate increase in inflation of 1.5 percentage point, on top of the current inflation rate of 1.8 percent,” Finance Secretary Karl Kendrick Chua said during a briefing by DOF officials on HB 4774 before the House Committee on Ways and Means.

Once the tax reform is implemented, inflation rate could settle at 3.3 percent this year and next–higher than the 1.8 percent average rate in 2016 but within the central bank’s 3 percent to 4 percent target for 2017 and 2018.

“This is still low and sustainable,” the DOF official said.

Chua pointed out that two past events–the value-added tax reform of 2005 and oil price shock price of 2011, during which prices exceeded $100 per barrel–showed that higher taxes, or a sudden increase in fuel prices did not lead to runaway inflation and the collapse of the economic.

“Today, we are proposing a far more moderate increase, a 10 percent increase in the excise tax. So we think that this is manageable, the economy can absorb, we have a strong economy, and the central bank can also manage inflation quite well,” he said.

Under the bill, the excise tax on petroleum products will increase every year starting 2017 to 2019, these include:

• Lubricating oils and greases, including the base stock for lube oils and greases, high vacuum distillates, aromatic extracts, and other similar preparations, and additives for lubricating oils and greases, whether such additives are petroleum based or not, per liter and kilogram, respectively, from P4.50 to P7 in 2017, P9 in 2018 and P10 in 2019

• Processed gas, per liter, from P0.05 to P3 in 2017, P5 in 2018 and P6 in 2019

• Waxes and petrolatum, per kilogram, from P3.50 to P7 in 2017, P9 in 2018 and P10 in 2019

• Denatured alcohol to be used for motive power, per liter, from P0.05 to P3 in 2017, P5 in 2018 and P6 in 2019

• Naphtha, regular gasoline and other similar products of distillation, per liter, from P4.35 to P7 in 2017, P9 in 2018 and P10 in 2019;

• Leaded premium gasoline, per liter, from P5.35 to P7 in 2017, P9 in 2018 and P10 in 2019; unleaded premium gasoline, per liter, from P4.35 to P7 in 2017, P9 in 2018 and P10 in 2019

• Aviation turbo jet fuel, per liter, from P3.67 to P7 in 2017, P9 in 2018 and P10 in 2019

• Kerosene, per liter, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019

• Diesel fuel oil, and on similar fuel oils having more or less the same generating power, per liter, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019

• Liquefied petroleum gas, per liter, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019
Asphalts, per kilogram, from P0.56 to P3 in 2017, P5 in 2018 and P6 in 2019

• Bunker fuel oil, and on similar fuel oils having more or less the same generating power, per liter, from P0.00 to P3 in 2017, P5 in 2018 and P6 in 2019

“We have to bear in mind that this is still a moderate oil price regime at $50 per barrel, compared to the peak of over a hundred five years ago,” Chua said.

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