In a statement, the department said that January’s 4-percent inflation rate — the highest in three years — was partly the result of improved “sin” tax payments.
Tobacco inflation rose to 17.4 percent even though the expected increase arising from higher taxes on cigarettes was only 8 percent, it added.
“In January 2018, month-on-month inflation was only 0.99 percent and when the effect of tobacco is removed, it was only 0.80 percent,” Finance Undersecretary Karl Kendrick Chua also said.
He noted that the sale of cigarette manufacturer Mighty Corp. to Japan Tobacco Inc. (JTI) last year, prompted by a tax evasion case filed by the Bureau of Internal Revenue, had led to the payment of proper taxes.
With JTI in control of Mighty, the company is now paying the correct amount of taxes, which also means that it is charging higher cigarette prices.
“In fact, if Mighty continued to evade tax and therefore cigarette prices remain low, overall inflation would have gone down to around 3.75 percent,” Chua claimed.
The inflation spike could also be due to apparent “profiteering” by some traders and not just because higher taxes took effect at the start of January.
Chua claimed that certain retailers took advantage by selling old stocks not covered by higher taxes at excessively high prices.
“Since the tax increase is not expected in the first half of the month due to sale of old stock, we can surmise that profiteering is a major reason for the higher than expected inflation,” he said.
“We expect this to ease in the coming months as the government intensifies monitoring of prices and as the markets adjust.”