Tax cuts won’t lead to high inflation-BSP

BANGKO Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo maintained that the Duterte administration’s plan to cut income tax rates, if realized, will not necessarily result in higher inflation.

The BSP official said that while lowering income taxes means higher household income, inflation will be at a manageable level.

“Higher household spending doesn’t necessarily result in complete inflation pressure, but it is an incentive for business to produce more because they know that more people have purchasing power,” the BSP official said in a sideline interview on Friday.

“You have production going up and demand going up. Hopefully, it doesn’t result into a one-to-one increase in inflation,” he added.

Recently, BSP estimated August inflation rate to be within a range of 1.6 percent to 2.4 percent. The rate could be lower from July’s 1.9 percent due to the decrease in electricity prices, but may reach a two-percent level because of higher fuel costs.

Guinigundo said that the cut on corporate income tax is also seen to trim down the prices of goods and services.

“If the corporations start paying less taxes from 32 percent to something like 25 percent, then the cost of production for them will go down. So, they can actually bring down the prices of their products,” he said.