SENATOR Paolo Benigno A. Aquino IV on Wednesday said he intends to file a bill amending Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act in order to allow the suspension of impending fuel excise taxes if inflation breaches government targets.
“I intend actually to file a bill that includes the safeguard… You need some level of leeway to be able to dial back prices if they’re spiraling out of control. This means we have an acceptable level of inflation every year, but if we surpass it, we need a mechanism to lower prices,” he said during the Senate hearing on the inflationary effects of the tax reform law.
Tax reform raised the excise on gasoline and diesel to P7 per liter and P2.50 per liter, respectively. It also contains a suspension provision on the fuel excise tax if the Dubai crude oil price benchmark in the three months prior to the scheduled increase averages $80 per barrel or higher.
Headline inflation hit 4.5% in April, which was beyond the 2-4% target range set by the Bangko Sentral ng Pilipinas (BSP) for the full-year 2018.
Mr. Aquino said his proposed measure would bring back the inflation provision pushed by the Senate in a version of the tax reform law it considered.
“This was my original suggestion. The Senate version contains this but the bicam removed it,” he said.
Finance Undersecretary and chief economist Gil S. Beltran and BSP Deputy Governor Diwa C. Guinigundo cautioned against any moves to suspend excise taxes under the TRAIN law.
Mr. Beltran said the trigger provision for a suspension was only based on oil prices since inflation may come from other sources aside from the tax reform law, noting that the measure only accounts for a small share of price increases.
He added that inflation was mainly driven by world commodity prices, exchange rates and increased demand with consumers now having more money in their pockets.
He added that TRAIN was only responsible for 7 percentage points of the 34% increase in fuel prices during the first quarter of 2018. Meanwhile, the remaining 27% was due to the increasing world prices of crude and peso depreciation.
The best option to offset inflation, Mr. Beltran said, was raising the P200 cash transfer provided under the tax reform law for the poorest families.
“It would be wiser to increase the payout… The best option is to include it in the budget a flexible provision that will allow us to increase the payout. I think that’s the better solution,” he said.
Mr. Guinigundo said the tax reform law should be viewed with a “medium-term perspective” since the measure would do away with the need to borrow for its infrastructure projects.
“If we suspend this, it would also forestall the implementation of infrastructure (programs) which we need to be able to sustain our potential output and to be able to sustain the momentum of economic growth which is more sustainable and more inclusive,” he said.
Mr. Guinigundo assured that inflation remains manageable, rejecting claims that price increases are out of control.
“We don’t want an undue perception that inflation is out of control… Inflation is very much manageable; we just have to communicate to the market the proper analysis and assessment of these price dynamics,” he said.
Sought for comment, Senate economic affairs committee chair Sherwin T. Gatchalian said the law needs to be implemented for another quarter to properly assess whether the fuel excise taxes under TRAIN need to be suspended. — Camille A. Aguinaldo

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