AN INCREASE in excise tax on sweetened beverages, alcohol and tobacco could push inflation to as high as 4.5 percent in 2027, adding to price pressures as the country continues to grapple with the oil shock fallout.
This is according to Chinabank Research’s latest commentary, which said the tax increases proposed by the Department of Finance (DOF) could push inflation to 4.2 percent based on their first-round effects alone and to as high as 4.5 percent when potential second-round effects are included.
If realized, the country’s inflation rate will be above the 3-percent target of the Bangko Sentral ng Pilipinas (BSP) and the upper end of its 2-percent to 4-percent tolerance band. It will also be higher than Chinabank Research’s own 3.9-percent inflation forecast for 2027.
“Although the measures could advance public health objectives by discouraging consumption of harmful products, higher excise taxes would likely be passed on to consumers, as observed following the Sin Tax Reform Law of 2012 and the Train (Tax Reform for Acceleration and Inclusion) Law of 2017,” the bank said.
“Nevertheless, the inflationary impact should be relatively contained and largely concentrated in the affected product categories, with limited knock-on effects compared with broad-based shocks such as higher oil, electricity, or rice prices,” it added.
The DOF’s proposed tax hikes form part of the government’s measures to offset revenue losses from the proposed tax relief package, which seeks to raise income tax thresholds and provide exemptions for micro and small businesses. The tax hikes are expected to generate an average of P74.78 billion annually from 2027 to 2030.
If implemented at the start of 2027, Chinabank estimated that the proposed tax measures could add as much as 0.6 percentage point to headline inflation once second-round effects are included.
On the direct impact alone, the tax hikes are estimated to add 0.3 percentage point to inflation.
Among the affected products, tobacco is estimated to add 0.038 percentage point to inflation, based on the proposed 3-percent increase in prices. Alcohol, the prices of which may rise by 20-percent, could contribute another 0.094 percentage point.
Sweetened beverages, including soft drinks and concentrated fruit juices, are estimated to contribute 0.105 percentage point and 0.021 percentage point, respectively, based on the planned price hikes of 26 percent and 14 percent.
Meanwhile, ice cream, yogurt and other frozen desserts are estimated to add 0.031 percentage points to inflation, based on a projected 9-percent price increase. (Nyah Genelle C. De Leon © Philippine Daily Inquirer)
