Measures sought to ease TRAIN impact on prices

Some Cebu business leaders have urged the government to implement measures to cushion the rising consumer prices, which is largely blamed on the Tax Reform for Acceleration and Inclusion (TRAIN) law instead of suspending its implementation.

"The inflationary effects of TRAIN were predictable and I would be interested in seeing the response of the economic managers of the country," Cebu Business Club president Gordon Alan Joseph told The FREEMAN yesterday.

Joseph's comes following calls by some senators to suspend TRAIN's implementation as inflation continues to increase, even surpassing the government’s target last month.

"Suspending the TRAIN could be a knee jerk reaction and inflation may be something we will have to live with if we want to achieve our infrastructure development goals," the businessman pointed out.

Instead of suspending the law, Joseph urged the country's economic managers to cut taxes on certain products like fuel to mitigate inflation.

"However, they may be able to study reducing taxes on items like fuel to mitigate inflation. I find that increasing taxes on fuel, now that fuel prices are increasing, to be unnecessary," the business leader further stressed.

Joseph believes the "government revenue will be increasing anyway without increasing taxes."

"There may be other items where tax increases may also be reduced. Sadly the TRAIN law allows for compounding taxes as prices increase because of inflation," he further explained.

Aside from petroleum products, the first package of the administration’s comprehensive tax reform program that took effect last January 1 also raised duties on cars and sugar sweetened drinks.

The TRAIN also slashed personal income tax rates, increasing the disposable income of the middle class.

For his part, Mandaue Chamber of Commerce and Industry vice president for external affairs Steven Yu believes that suspending the TRAIN law is not the solution to the rising inflation and interest rates.

He cited the major contributing factors to the rising inflation are external in nature such as the rising global crude oil prices at four-year high of USD80 "which just happen to coincide with the implementation of the TRAIN law."

"While it is unfortunate for us, suspending the TRAIN Law will do more harm than good to the economy, and will possibly affect our ratings upgrade," Yu said.

"What the government can do is to implement mitigating measures that can soften the inflationary trajectory brought about by high oil prices. And so with relaxing some rules in the financial sector that can stabilize interest rates," the chamber official also pointed out.

He said the Bangko Sentral ng Pilipinas and the Department of Finance "seem to be handling it well and we are confident that inflation will normalize soon."

Earlier, some senators had called for the suspension of higher duties on fuel after inflation reached a new 5-year peak in April and breached the government's target.

The National Economic and Development Authority earlier said the inflation surge is temporary and seen to normalize towards the end of the year, as average inflation has already exceeded the government’s target as of April.

Headline inflation accelerated 4.5 percent last month, up from 4.3 percent recorded in the preceding month and 3.2 percent in April 2017.

This brings the year-to-date average to 4.1 percent, slightly above the full-year target of 2-4 percent. Nevertheless, the inflation outturn for the period is within the BSP’s expectation, as the headline inflation falls within its 3.9-4.7 percent forecast.

Socioeconomic Planning Secretary Ernesto Pernia earlier said the current surge in inflation is partly due to the transitory impact of the TRAIN law but is expected to stabilize by next year.

“The current surge in inflation is partly an initial reaction to the implementation of TRAIN and is expected to be short-lived and should taper off over the coming months,” he said.

The more important sources, however, are the slew of world oil price increases and the depreciation of the peso.