The excise tax hike under the Department of Finance’s (DOF) proposed comprehensive tax reform plan is expected to create some inflationary pressure, and could result in moderate increases in inflation in 2017 and 2018, the Bangko Sentral ng Pilipinas (BSP) said.
Diwa Guinigundo, Deputy Governor of the BSP, told reporters last week that the increase in excise taxes in the tax reform package proposed by the DOF will bring about “muted” increases in prices.
An average of 0.47-percent may be added for 2017 inflation rates, while 0.43 percent is seen for 2018. Even when added to the BSP inflation targets of 2.9 percent for 2017 and 2.6 percent for 2018, Guinigundo said this is still within the overall BSP target range of 2 percent to 4 percent for 2016-2018.
“We also tried to see how the possible excise tax on petroleum products will play out in terms of inflation. Excise tax on petroleum will have positive effect on transport, [but]it will be inflationary. But there is also another downside risk, which is the sluggish global economy,” Guinigundo said.
“So if you add that all, it will amount to 0.47 [percent]. So given the baseline 2.9 percent estimated for 2017, with 0.47 percent [additional], you are still within 2 to 4 percent. For 2018, your baseline scenario is 2.6 percent and the impact of electricity rates, excise tax on petroleum products, effect on transport, the second round effect is likely at 0.43 [percent], so 2.6 plus 0.43, that is about 3 percent,” the BSP deputy governor said.
“So we are still within the inflation target of 2 to 4 percent for both years 2017 to 2018,” he added.
Under the DOF’s proposed tax reform plan, wage earners’ personal income taxes and companies’ corporate income taxes will be reduced to 25 percent, leading to increases in value added tax (VAT), and excise taxes of petroleum products and passenger cars.
The BSP reduced its 2016 inflation forecast to 1.7 percent from 1.8 percent previously.