Special Report on the Economy
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Finance pushes higher taxes on ‘sin products’

Finance Secretary Carlos Dominguez III said the government will push through with its plan to further increase the excise taxes on alcoholic beverages and cigarettes, despite its impact on inflation.

“It is the right thing to do. Just because you’re going to get a bad reaction, that doesn’t mean you are going to stop,” Dominguez said in a news briefing.

The Tax Reform for Acceleration and Inclusion Law took effect in January 2018 after it was signed by President Rodrigo Duterte in December last year. The law cut personal income taxes but raised the excise taxes on tobacco, alcohol, fuel and automobiles.

Dominguez said the Finance Department would support the proposal of Senator Manny Pacquiao to raise further the taxes on cigarettes and alcohol.

“He has a measure in there which conforms to ours. We will support his measure. It’s not doubling the rates. I don’t really remember the exact rates. Let’s just wait for it until he files it,” Dominguez said.

Inflation accelerated to 4.5 percent in April from 4.3 percent in March, driven by faster increases in the prices of so-called ‘sin products’ like tobacco and alcohol.

Finance Undersecretary and chief economist Gil Beltran said the current spike in inflation was only temporary. He said the TRAIN law was a long-term measure that would push the economy to a much higher development path, create more jobs and improve the living conditions for our people.

Beltran said while year-on-year inflation reached 4.5 percent in April, the month-to-month inflation eased from 1 percent in January to only 0.5 percent in April.  Average inflation in the first four months was recorded at 4.1 percent, over the upper limit of the target range of 2 percent to 4 percent.

“This suggests a potential easing of inflation moving forward. The Bangko Sentral ng Pilipinas expects inflation to temper and settle to 3.9 percent in 2018 and decelerate further to the midpoint of the target range in 2019,” Beltran said at a Senate hearing.

Beltran said the April 2018 inflation was driven by the higher prices of corn, fish, tobacco and personal transport. These price increases were a result of a variety of factors and could not be attributed to the impact of the Train law, he said.

Tobacco prices rose 46 percent year-on-year in the first quarter on higher tax collection. “Of the 46 percent price rise, Train only accounts for 2 percentage points of the increase; sin tax for the 4 percentage points; and the rest [40 percentage points] is due to the industry’s response to more

efficient sin tax collection,” Beltran said,

Petroleum prices increased 34 percent year-on-year in the first quarter of 2018. Of the 34 percent, Train  accounted for 7 percentage points of the increase while the rest (27 percentage points) was a result of the higher world prices of crude oil and the peso depreciation, Beltran said.

Higher international oil prices along with the peso depreciation were also the primary factors for the increase in the cost of operating personal transport. ‘

“Higher crude oil price and currency depreciation account for P9.10 or 22 percent of retail price, while additional excise tax on fuel arising from the Train contributed less at P2.80, including additional VAT, or 7 percent of retail price, Beltran said.

The inflation rates of clothing and footwear; housing, water, electricity, gas, and other fuels; health; overall transport; communication; and education slowed down, consistent with the administration’s policy objectives, he said.

Beltran said that higher salaries as a result of the Train law and the government’s increased spending to pump prime the economy induced demand, which, in turn, drove up prices.

“Moderate inflation is typical for a rapidly growing economy, and inflation has been manageable. The BSP has sufficient tools to reign in unwarranted price shocks and remains ready to implement necessary monetary measures to actively keep inflation under control,” Beltran said.

Topics: Finance Secretary Carlos Dominguez III , Tax Reform for Acceleration and Inclusion Law , Senator Manny Pacquiao , President Rodrigo Duterte
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