LIBRT: The enforcement of the TRAIN Law must be suspended to prevent the inflation rate from

further rising.
Affirmative argues on two grounds. First, inflation rate is at its all-time high in 6 and 1/2 years:
4.5% just in the months of February and April.
The Development Budget and Coordination Committee (DBCC) and BSP sets the inflation targets
at 3 ± 1 percentage point for 2017-2018 and at 3 ± 1 percentage point for 2019-2020. This inflation
target has already been breached. NEDA reports that impact of the newly-implemented Tax
Reform for Acceleration and Inclusion (TRAIN) law and the continued depreciation of the
Philippine peso will "mainly influence" price movements in the coming months.
To be specific, BSP reports that upward adjustments in domestic pump prices of gasoline and
diesel also led to higher transport inflation during the month. The Monetary Board observed that
the risks to the inflation outlook remain weighted toward the upside owing mainly to price
pressures emanating from possible further increases in global oil prices.
Even the legislators acknowledged the need to suspend the enforcement of excise tax on fuel when
certain factors concur. Dr. Dennis Mapa, Dean of the School of Statistics, UP Diliman, concludes
that a Php 3.00 excise tax on diesel (in Php) per liter would cause inflation rates for the poor and
non-poor to increase by about 0.897 and 0.090 percentage points respectively But, the criteria for
suspending the excise taxes are not dynamic, flexible, or wieldy. Despite the increasing average
price per dollar of the Dubai crude oil, the increase still falls short of the requirement of 80 USD
per barrel requirement of the TRAIN Law before suspension is warranted.
Economics expert Jose Enrique Africa, IBON Foundation, notes that inflation rose and gross
domestic product (GDP) growth slowed down in the last two rounds of oil tax increases: in 1996,
when the government imposed for the first time the excise tax on oil; and in 2005, when the
expanded value-added tax (E-VAT) was implemented. This implies that excise taxes on oil will
have significant effects on the inflation rate. And, such phenomenon is what we are experiencing
right now.
The unique aspect of inflation this time is the highly volatile price of crude oil in the world market,
requiring more flexible mechanism to efficiently arrest rising inflation rate. World Bank, U.S.
Energy Information Administration, among others, forecast a continuing increase in the price of
crude oil in the world market in the following years. 68 USD is the projected average price of
crude oil for 2018. Given the increasing price of crude, this is not the time to exact steep excise
tax on oil products.
Second, suspension is the most responsive measure to the high inflation rate.
Affirmative proposes that mechanism under the TRAIN Law, specifically section 148, be based
on changes on oil prices in the world market. Thus, as experts study and come up with a more
sensitive mechanism to respond to high inflation , the excise tax on oil must be suspended.
The cash transfers allocated by the government to cushion the effects of the high inflation rate
actually contribute to rise of inflation of the mechanism’s inflationary potential. In a system of
cash transfers the subsidy is in the form of cash that is paid to buy the commodity. This cash is
income for those who sell the commodity. They would, in turn, save a portion of that additional
income and spend the rest. This becomes income for those who they buy from.
In other words, long after the subsidy is spent on the commodity it is intended to subsidize it
generates additional rounds of spending. If this additional spending is not met by an increase in
the supply of commodities, it will create inflationary pressure.
The quick response to this inflationary potential would be to ask the BSP to tighten its monetary
policy so that this additional income can be offset. But a tight money policy in a liberalized
economy makes investment more expensive and hence dampens growth. Indeed, the long-term
strategy for liberalization is to move to a regime of lower interest rates. In practice, inflation is
making it difficult to keep interest rates down to levels that will encourage investment.
As far as monetary and fiscal policies are concerned, it takes time for the impact of the monetary
policy to be felt. There is always the risk that the BSP could go overboard. It could raise or lower
rates that are more than warranted, thereby exacerbating its imbalance. Admittedly, a number of
solutions are needed to arrest the growth of inflation rate. Given the clear link between the
implementation of the TRAIN and the rise of the inflation rate, suspension of law becomes
indispensable.