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Excise tax suspension to harm economy

Suspending excise taxes on petroleum products amid rising inflation would do more harm than good to the economy and actually lead to higher consumer prices, the research and advocacy organization Action for Economic Reforms (AER) said on Wednesday.

“The motivation behind suspending the fuel tax is supposedly to bring down inflation. Ironically, if you would suspend the oil tax that would result in higher [budget]deficit,” AER coordinator Filomeno Sta. Ana 3rd said in a press briefing.

“Higher deficit, given our present situation, will lead to higher inflation,” he added.

Fuel excise taxes are one of the main sources of government revenues and closing this tap would require borrowings to fund the Duterte’s administration’s spending plans.

State expenditures, meanwhile, will increase money supply but the available liquidity cannot be immediately put to good use by the private sector, Sta. Ana noted, with factories nearing peak capacity and infrastructure bottlenecks hindering expansion plans.

“In this setting, expect inflation to go up further,” he said.

The rise in consumer prices hit 4.6 percent in May, above the Bangko Sentral ng Pilipinas’ 2.0-4.0 percent target.

The Finance department has rejected calls to suspend higher fuel taxes imposed at the start of the year, saying this cannot be done under the law.

“The DoF does not have any plans on immediately suspending the increased rates of excise taxes on petroleum products for 2018 as this is not the mechanism sanctioned by law,” Finance Undersecretary Karl Kendrick Chua has said.

Republic Act 10963 or the Tax Reform for Acceleration and Inclusion law increased taxes on a range of goods and services in exchange for lower personal income tax rates. Its implementation at the start of 2018 has been blamed for higher inflation and rising costs of consumer goods and services, prompting calls from legislators for its suspension — in whole or in part.

Section 43 of the Train law provides a mechanism to suspend scheduled increases but also states that the existing excise tax at the time of the suspension cannot be reduced.

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