CPBRD recommends tax relief measures amid Middle East crisis

The House of Representatives’ policy research arm is calling for tax relief measures for both consumers and local businesses in a bid to offset the economic slowdown resulting from high inflation brought by the global oil price shock amid the Middle East crisis.

In its discussion paper titled “Exploratory Analysis of the Impact of the Oil Supply Shock on Inflation: From Oil Crisis to Affordability Crisis?” the Congressional Policy and Budget Research Department (CPBRD) recommended that the government adopt a longer-term perspective which includes tax relief measures.

CPBRD said that ongoing crisis in the Middle East has already been “especially impactful on the Philippines.”

Citing data from the Department of Energy (DOE), the congressional research body said that that diesel prices have risen from P55 to P66 per liter in January to P129 to P146 as of early April with gasoline prices have risen by around P40 per liter during the same period. 

“The surge in the prices of petroleum products in March has proven to be immensely consequential to the consumer price index,” CPBRD said, noting that inflation rate accelerated from 2.4% in February to 4.1% in March —above the government’s comfortable ceiling of 4%.

“Food price inflation can be expected to accelerate given both domestic and international pressures,” it said.

With this, the CPBR said that “the government is strongly advised to adopt a longer-view of the present energy crisis.”

The congressional research body emphasized that while immediate interventions such as targeted transfers can be viewed to be necessary, particularly for marginalized sectors, “it is also crucial to consider longer-term programs and policies.”

With anticipated inflationary effects of the global oil crisis, the CPBRD noted that “it is incumbent on the government to, at least, consider providing tax relief to consumers.”

“The anticipated reduction in the purchasing power of Filipino consumers will reduce aggregate demand and, in turn, constrain economic growth,” it said.

“In response, a one-time income tax holiday, for example, has the potential to bolster disposable income and attenuate the anticipated reduction in economic activity,” it added.

An income tax holiday is basically a break from the payment of income taxes levied by the government for specified period of time. 

The CPBRD, however, did not indicate a time frame for its income tax holiday recommendation.

Moreover, the congressional research body said that the government should take careful consideration of the tax regimes that govern local businesses. 

“Higher input costs, in particular, are poised to erode the (already) narrow margins of Filipino businesses. Constrained consumer demand due to rising costs of living exerts further demand-side pressure on firms,” it said.

“If firms are forced to shut down then production, job generation, and economic growth will all decrease. There is thus a readily defensible argument to be made for the reduction of the tax burden of local enterprises,” it added.

The CPBRD likewise said that policymakers can look into reducing the reliance of the country on imported petroleum products – particularly shocks in the supply of these commodities.

“Essential to this strategy is the development of a more robust, diversified, and efficient power producing sector,” it said. 

“Increasing the availability of cheap, resilient, and, perhaps more importantly, reliable energy is integral to the adoption of electric vehicles (EVs), more sophisticated public transportation solutions, and efficient logistics infrastructure systems,” it added.

The congressional research body added that reducing the dependence on imported oil products necessitates a restructuring of the country’s energy infrastructure.

“There is also an urgent need to strengthen the Philippine agricultural sector. Anemic and uneven growth in the sector has resulted in a growing reliance on imported food products,” the CPBRD said.

“This, in turn, has increased the exposure of the country to supply shocks in the global market,” it said. —AOL, GMA News