Oil tax hike suspension, rice tariffication may bring inflation below 4% next year

MANILA, Philippines — The planned suspension of a further increase in excise tax on fuel products coupled with the lifting of import limits on rice could bring inflation back on target starting next year, a central bank official said Wednesday.

Inflation spiked to a fresh nine-year high of 6.7 percent in September, keeping the pressure on the Bangko Sentral ng Pilipinas to jack up interest rates further.

Monetary authorities have conceded to missing their 2-4 percent target band for inflation this year and next, with rising prices seen averaging 5.2 percent in 2018 and 4.3 percent in 2019.

To combat surging prices, the government plans to suspend an increase in oil taxes scheduled to be levied in January next year. This is in addition to recent measures announced to lower food prices such as liberalizing the importation of rice, a main staple.

READ: Rice tariffication: What it is and how it can ease inflation | DOF Sec. Carlos Dominguez III: ‘No stopping fuel tax hike suspension’

At a Senate hearing, BSP Assistant Governor Francisco Dakila, Jr. said lifting import caps on rice could reduce annual inflation by 0.7 percentage points next year.

Meanwhile, if the new round of excise tax hike on fuel will be deferred in the entire 2019, it could shave 0.2 percentage points off inflation next year, Dakila added.

Both measures combined, inflation will likely ease by 0.9 percentage points, bringing the 2019 inflation forecast to 3.4 percent from 4.3 percent previously.

Fuel tax hike may be suspend for 3 months only

Prices began rising at the start of the year after the government slapped higher excise taxes on fuel and other commodities. The price hikes quickly spread to cover more goods—worsened by a weak currency and stubbornly high global oil prices.

At the same congressional hearing, Finance Undersecretary Karl Kendrick Chua said postponing the fresh fuel tax hike may only cover a quarter of 2019, and not the entire year.

The economic managers are also discussing the mechanism for the resumption of the tax increases on oil, Chua added.

“The Secretary [of Finance] has opined if the suspension is based on three months, then the resumption could also probably be based on a three-month cycle,” Chua told senators.

“But that’s his opinion and we’re still reviewing and discussing,” he added.

The Department of Finance estimates that suspending the additional excise taxes on fuel in whole 2019 could result in foregone revenues of P41.6 billion. But the projected losses could be offset by an estimated P14 billion value added tax collections from fuel products.

Last week, an analyst at HSBC said putting the excise tax increase on hold and flooding the market with imported rice will mean wider budget and current account gaps for the Philippines. — Ian Nicolas Cigaral