The yellow Liberals have been making a lot of vicious noise lately against the Tax Reform for Acceleration and Inclusion (TRAIN) calling for the suspension of the excise tax on fuel that in turn is being blamed for the spike in the inflation rate.
The government index showed prices of basic goods and services surged to a record 4.6 percent in April.
The Liberal Party (LP) is now spearheading efforts in Congress to suspend the provision in TRAIN raising the excise tax on fuel which is also a convenient excuse to gain public sympathy as the midterm elections draw near.
As with all the yellow efforts, the volleys against the TRAIN are all bound to boomerang to the opponents of President Rody Duterte.
The TRAIN was originally the comprehensive tax reform package (CTRP) which outgoing Finance Secretary Cesar Purisima presented to successor Carlos Dominguez III at the start of the Duterte administration in 2016.
Not all of Purisima’s proposals were carried in the TRAIN but the review of the tax system was among those adopted.
Also during the term of President Noynoy Aquino, fuel prices which now average above P50 per liter, reached above P67 per liter yet the excise tax was not reduced or suspended which economists say is a good move.
Economists believe it is better for the government to implement targeted subsidy such as the provision of cash doles to the poor rather than implement a knee-jerk reduction or suspension of the tax rates.
The additional excise tax on oil and oil products arising from the Train accounted for only 0.4 percentage points of the total 4.6 percent rise in the April inflation rate, according to Department of Finance (DOF) computation.
The Palace was also quick to respond to the price spike such as the deployment of surveillance teams of the Department of Trade and Industry (DTI) to monitor prices and arrest traders who take advantage of the TRAIN to jack up prices.
Former World Bank economist Finance Undersecretary Karl Kendrick Chua said the DoF found the inflation spike as the result of apparent “profiteering” and not due to the TRAIN.
He said some traders sell old stocks they procured before the January 1 effectivity of the TRAIN at higher prices then putting the blame on the tax reform law when asked by their patrons.
The Department of Energy (DoE), last January, called executives of local oil firms to a meeting where the DoE urged that prices are maintained since the oil firms have 15-day stocks.
Discount was also provided to public transport to soften the effect of rising fuel prices.
Aside from profiteering, Chua added that Rody’s firm actions against business abuses may have contributed to the price spike.
He said better compliance with the payment of excise taxes on “sin” products or tobacco and alcohol reflected in the prices which invariably have to rise.
Chua cited the example of the campaign against tax evasion, particularly against Mighty cigarette which was recently acquired by Japan Tobacco Inc. (JTI) after the government assessed its former owner nearly P40 billion in back taxes that the previous administration failed to collect.
The Bureau of Internal Revenue (BIR) filed several criminal complaints before the Department of Justice (DoJ) against Mighty Corp. for its massive use of counterfeit tax stamps.
With JTI in control of Mighty, the company is now paying the correct amount of taxes and higher prices for its products to make up for the higher tax rate.
“If Mighty continued to evade tax and therefore cigarette prices remain low, overall inflation would have gone down,” Chua said.
Chua sees the inflation rate to return to normal at around three percent once the markets adjust and the government intensifies its monitoring campaign.
“We have to match the proposed solutions to issues we want to address, and TRAIN is not the main reason for inflation,” Chua said.
Overeager politicians, thus, should hold their horses in their obvious media mileage effort.