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Philippines: Tax reform won’t stoke inflation – economists
MANILA, Philippines — The implementation of the comprehensive tax reform program as approved by the Senate as well as the House of Representatives would not stoke inflation, according to economists.
Michael Wan, economist at Credit Suisse, said the addition to the consumer price index (CPI) under the version of the Tax Reform for Acceleration and Inclusion (TRAIN) of the Senate is lower compared to that of the version approved by the House of Representatives.
Latest information suggests the tax intake from the Senate bill ranging from P100 billion to P130 billion is lower than the projected additional revenue amounting to P157 billion under House Bill 5636.
Wan said the inflationary impact is lower in the Senate bill and is more supportive of overall consumption.
“Our previous analysis of the House bill shows that inflation should rise by around 0.9 to 1.2 percent in 2018 due to the tax changes. Addition to CPI will likely be lower in the Senate version for a few reasons,” he said.
Wan said the excise taxes on fuel are back-loaded rather than front-loaded under the Senate version while tax increases such as on sugary drinks are lower.
He said the newly introduced taxes such as documentary stamp tax, mining taxes, and cosmetic procedures are narrow and on specific sectors rather than broad-based.
Wan said value added tax (VAT) exemptions are kept for items such as low-cost rentals and mass housing in the Senate version.
Furthermore, Wan said the Senate bill is slightly more supportive of private consumption, with personal income tax cuts front loaded in one tranche in the Senate bill compared with two tranches in 2018 and 2020 under the House version.
Nomura Securities economist Euben Paracuelles said legislators have ample time to reconcile the Senate and the Lower House versions of the bill in a bicameral conference before President Duterte signs it into law.
“We continue to firmly believe that the first package of tax reforms will be enacted before year-end and effective at the start of 2018 with a sizeable impact on net revenue,” he said.
The economist said the tax reform would help simplify and make the tax system more efficient while also being positive in terms of funding the government’s ambitious infrastructure program.
“The substantial personal income tax cuts should also boost disposal income, supporting further our bullish growth outlook,” he said.
Paracuelles said Nomura expects a GDP growth of 6.7 percent for the Philippines this year and 6.8 percent next year.
Source: http://www.philstar.com/business/2017/12/04/1764971/tax-reform-wont-stoke-inflation-economists