When the first package of tax reforms was passed by Congress last year, President Duterte’s economic managers quickly allayed the public’s fears of rising consumer prices once higher taxes took effect on Jan. 1.
When the inflation data for January were released last month, the public’s fears proved real. The Philippine Statistics Authority (PSA) reported that prices of basic goods and services had risen at their fastest pace in more than three years.
Inflation rose to a 39-month high of 4 percent in January, with many claiming that average consumer prices increased due to the new or higher excise taxes slapped on a number of products under the Tax Reform for Acceleration and Inclusion (TRAIN) law.
It was the fastest since the 4.3 percent posted in October 2014. Finance Secretary Carlos Dominguez III, head of the Duterte administration’s economic team, expressed surprise that the inflation rate had already hit the top end of the government’s 2-4 percent target range for 2018.
He has promised to look at the figures closely and raised the same suspicion that merchants could have taken advantage of
the new law and unreasonably raised prices on their old inventories.
Signed by President Duterte in December, the TRAIN law jacked up or slapped new taxes on oil, cigarettes, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
The higher oil tax is believed to cause a ripple effect on electricity rates, transportation costs and, ultimately, basic goods that need to be delivered from the source to the customers.
More than the higher taxes slapped on consumption under the first tax reform package, it is very likely that profiteering by unscrupulous traders and mismanagement at the grains agency pushed inflation higher at the start of the year.
During a hearing of the Senate committee on economic affairs, Socioeconomic Secretary Ernesto Pernia noted that the higher inflation in January impacted on poor families as there was an “appreciable rise in the price of rice.”
This was not due to TRAIN, he explained, but more to the
inefficiency of the National Food Authority (NFA) in handling rice buffer stock, which caused fears of a shortage after the NFA went to town saying it needed to import the staple as its supply was good for only a few more days.
The Department of Finance is also blaming the spike in January inflation on profiteering by unscrupulous traders. Finance Undersecretary Karl Kendrick Chua suspects that certain retailers with old stocks procured before the Jan. 1 effectivity of the TRAIN took advantage of the new law and imposed excessive price adjustments.
The National Economic and Development Authority had already noted that aside from mitigation measures to help the most vulnerable to any increase in consumer prices, equally important were vigilant price monitoring and prompt action to curb profiteering.
The budget for the unconditional cash transfer program to assist the poorest 50 percent of Filipino households in coping with the transitory impact of TRAIN on basic prices has been approved and is set for release this month.
At the beginning of the year, Trade Secretary Ramon Lopez promised that the government would deploy teams to monitor prices of goods in supermarkets and groceries to make sure that there would be no sharp spikes in the prices of old stocks being sold as these were not covered by the TRAIN law.
“The [Department of Trade and Industry] already deployed teams to check the prices,” Lopez then told a media conference. “We are urging our consumers to immediately report any unusual increase in the prices of goods.”
Now that inflation data are showing that prices had indeed gone up unreasonably, the government should go hard on profiteering and punish those traders who are taking advantage of hapless consumers.
Clapping a few of them in jail will deliver the right signal that the government will not tolerate wrongdoing against ordinary consumers.