Rice import reforms could ease inflation — BSP
REPLACING rice import quotas with tariffs could help soften the impact of higher taxes on inflation, the Bangko Sentral ng Pilipinas (BSP) said, given expectations of faster price increases for basic goods this year.
“[ T] he proposed reforms in the rice industry involving the replacement of quantitative restrictions ( QR) with tariffs and the deregulation of rice imports could serve to reduce inflation,” according to the highlights of the BSP’s latest policy review published yesterday.
Philippine authorities can limit the volume of rice imports every year via the QR, a preferential trade deal secured by the Philippines in 1995. This cap is in place to prevent the influx of cheap rice and keep locally produced crops competitive.
If lifted, individuals and businesses can import additional volumes of the crop but will have to pay a 35% tariff.
The Monetary Board kept interest rates steady during its Dec. 14 meeting, saying it expects inflation to remain manageable over the year ahead, even as policy makers acknowledged that prices will trend higher.
“The risks to future inflation remained weighted toward the upside,” the BSP said, noting that the “transitory” impact of tax reform, expectations of higher oil prices, and pending petitions to raise transport fares and power rates will drive up the cost of widely used goods.
The measure signed as Republic Act 10963 reduces personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes.
Foregone revenue will be offset by the removal of some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.
BSP Deputy Governor Diwa C. Guinigundo said the bank expects the new taxes to add “less than one percentage point ( ppt)” to overall inflation, which would be countered by an equal 1ppt reduction from an expected easing in the price of rice once the QR is lifted.
On the other hand, the central bank is projecting slower global economic growth — mainly due to policy uncertainty in advanced economies — as well as geopolitical tensions as potential price dampeners.
The Monetary Board said inflation may “decline over the medium term” with rice tariffication.
Several bills pending before the House of Representatives seek to replace import restrictions with tariffs, but are still at the committee level.
Economic managers have thrown their support behind the lifting of the QR regime as it would have “beneficial” effects on inflation, with tariffs collected by the government expected to support mass irrigation, warehousing, and rice research.
The central bank expects inflation to average 3.4% this year, rising from 3.2% in 2017 but still within the 2-4% target range. Inflation peaked at 3.5% in October 2017, the highest in three years.