PROPOSED increases in excise taxes could push headline inflation beyond the target range next year, Chinabank Research said, as higher prices for sugary beverages, alcohol, tobacco, and other affected products feed into the consumer price index (CPI).
Since the start of the administration, higher excise taxes on sweetened beverages, alcohol and tobacco have been under consideration. The need for additional revenues has become more pressing as the proposed revision of income-tax thresholds advances in Congress.
According to the Department of Finance (DOF), the current excise-tax proposal could generate about P76 billion in additional revenues, more than offsetting the estimated P66 billion in revenue losses from proposed tax-relief measures.
While the measure could boost the government’s revenue collection and address health concerns, Chinabank Research said the resulting higher prices could ultimately be passed on to consumers.
“Although the measures could advance public health objectives by discouraging consumption of harmful products, higher excise taxes would likely be passed on to consumers,” Chinabank Research said.
It estimates that the proposed excise-tax package could add as much as 0.3 percentage point (ppt) to headline inflation in 2027 through its direct effects, assuming the measures are approved this year and implemented at the start of next year.
When potential second-round effects are included, the inflation impact could reach around 0.6 ppt, Chinabank Research said.
It currently expects inflation to average 3.9 percent in 2027. If the proposed tax increases are fully passed on to consumers, headline inflation could rise to around 4.2 percent based on first-round effects and as high as 4.5 percent once second-round effects are considered.
This is above the 2.0 to 4.0 percent target of the Bangko Sentral ng Pilipinas (BSP).
Chinabank Research said the inflationary effects would be concentrated primarily in the products directly covered by the proposed tax increases.
The package could raise the prices of sugary beverages, including soft drinks and juice drinks, by around 30 percent.
Its estimates show that soft drinks would make the largest direct contribution to inflation among the targeted products. The estimated direct inflation contribution is 0.105 ppt for soft drinks, while concentrated fruit juices would contribute another 0.021 ppt.
Distilled spirits would contribute 0.094 ppt, followed by tobacco products at 0.038 ppt, and ice cream, yoghurt and frozen desserts at 0.031 ppt.
Taken together, the bank’s estimates that the targeted products would produce a 0.289-ppt direct impact on headline inflation.
Using the latest Philippine Input-Output table to account for broader effects, the estimated total inflation impact rises to 0.552 ppt.
Meanwhile, for tobacco products, including cigarettes, e-cigarettes and tobacco devices, the proposed tax would increase from P69.45 per 20 sticks to P72.93 per 20 sticks.
The bank estimates a 0.038-ppt direct inflation contribution from tobacco, based on its CPI weight and the expected price increase.
“The inflationary impact should be relatively contained and largely concentrated in the affected product categories, with limited knock-on effects compared with broad-based shocks such as higher oil, electricity, or rice prices,” Chinabank Research said.
