DOF mulls over staggered fuel tax increase

The Department of Finance’s (DOF) proposal to stagger the increase in oil excise taxes would help temper inflationary pressures from the first tax reform package, a top Bangko Sentral ng Pilipinas official said Friday.

Initial computations showed an additional 0.4-0.5 percentage point increase in the inflation rate this year if the plan to impose a big time higher excise tax rates on fuel as well as vehicles would push through, BSP Deputy Governor Diwa C. Guinigundo told reporters. Sans the inflation risks from the tax hike, the BSP forecasts inflation to rise to 3.3 percent this year after settling last year at 1.8 percent, below the government’s 2-4 percent target.

For 2018, Guinigundo said the BSP had calculated an additional 0.8-1 percentage point increase in the prices of basic goods also as a result of higher taxes.

“Basically, if that’s the case, that’s the upper end of the target. We need to assess how monetary policy can respond to these changes. But remember: this is a one-off development,” Guinigundo said.

He said the impact could be tempered under a proposal to instead implement the tax hike on a staggered basis.  This way, only a minimal 0.13 percentage point would be added to inflation on the first year, he added.

Instead of the initial proposal of a one-time hike to P6 the excise tax slapped on fuel, the DOF proposed to implement it in three tranches of P3, P2 and P1 during the first three years. Thereafter, the government will implement an annual small indexation of rates.

Despite the pressures to inflation, comprehensive tax reform, in general, would benefit Filipinos, Guinigundo said. “The six tax reform packages will fund reduction in personal income tax, which is expected to result in higher domestic demand moving forward.”

House Bill (HB) No. 4774 filed by House ways and means committee chair and Quirino Rep. Dakila Cua last Tuesday contained the DOF’s proposal to lower personal income taxes, broaden the value-added tax (VAT) base by cutting down on exemptions, increase excise taxes on petroleum and automobiles, as well as reduce the estate and donors’ tax rates.

Unlike the earlier version of the first package of the DOF’s tax policy reform program that was pitched to Congress last September, HB 4774 will no longer remove the value-added tax exemption currently being enjoyed by senior citizens and persons with disabilities.

HB 4774 will also push for tax on lottery, while lowering the estate and donors’ taxes to a flat rate of 6 percent.