DoF sin tax plan may push sugary drink prices up 30%, inflation past 4% ceiling

Chinabank Research warns the DoF's proposed sin taxes could raise sugary drink prices by around 30% and push 2027 inflation above the BSP's 4% ceiling, reaching up to 4.5%. Nomura also raised its inflation forecasts on oil price pressures.

The Department of Finance's (DoF) proposal to hike taxes on sugary drinks, alcohol and tobacco could raise prices by around 30% and push inflation beyond the central bank's target ceiling in 2027, Chinabank Research said.

In a report on Wednesday, Chinabank Research said the proposed sin taxes, if implemented, could stoke inflation to as fast as 4.5% next year. "The proposal in its current form could add as much as 0.3 ppt (percentage point) to headline inflation in 2027, assuming it is passed this year and implemented at the start of 2027," it said. "Including potential second-round effects, the impact could reach around 0.6 ppt."

Chinabank said it expects inflation to average 3.9% in 2027. "If fully passed on to consumers, the proposed tax increases could push headline inflation above the BSP's upper target, reaching around 4.2% from first-round effects and up to 4.5% once second-round effects are included," it said. This means inflation could blow past the Bangko Sentral ng Pilipinas' (BSP) 4% ceiling next year. The BSP sees inflation breaching its 3% target over the next three years, at 6.1% this year, 5.4% in 2027, and 3.3% in 2028.

The DoF wants Congress to approve the Promoting Growth, Revenue, and Equity towards Socio-economic Sustainability (ProGRESS) bill, which includes a revision of income tax exemption thresholds and imposition of higher or new sin taxes. Under the current proposal, the excise tax on beverages with caloric or noncaloric sweeteners would more than triple to P20 per litre from P6, while the levy on beverages using high-fructose corn syrup would climb to P40 per litre from P1. The package also introduces a higher levy on beverages using high-fructose corn syrup worth P40 per litre from P12.

The DoF likewise seeks to remove the excise tax exemption on ice cream, sorbets, ice lollies and frozen yogurt and replace it with a P20-per-litre levy, resulting in a 9% price increase for edible ices. For distilled spirits, the excise tax could rise to P157.21 per proof litre from P74.16, with the DoF proposing to tax premixed alcoholic beverages or alcopops as well, making alcoholic beverages 20% costlier. The DoF also wants a unified P72.93 excise tax rate per millilitre of salt nicotine, per two millilitres of freebase nicotine and per pack of 20 heated tobacco products, which would drive tobacco prices up by 3%.

"Although the measures could advance public health objectives by discouraging consumption of harmful products, higher excise taxes would likely be passed on to consumers, as observed following the Sin Tax Reform Law of 2012 and the TRAIN (Tax Reform for Acceleration and Inclusion) law of 2017," Chinabank said. "Nevertheless, the inflationary impact should be relatively contained and largely concentrated in the affected product categories, with limited knock-on effects compared with broad-based shocks such as higher oil, electricity, or rice prices."

Meanwhile, Japanese financial giant Nomura said Philippine inflation may heat up faster than earlier expected as renewed escalation of the Middle East war stokes oil prices, fuelling second-order effects. In a report dated Sept. 15, Nomura raised its inflation estimates to 5.8% from 5.1% for this year and to 4% from 3.9% for 2027. "We now forecast average headline CPI inflation and core inflation in 2026 at a higher 5.8% (was 5.1%) and 4% (was 3.9%), respectively, due to our oil price assumption," Nomura research analysts Euben Paracuelles and Nabila Amani said. "We also expect more persistent second-round effects from higher energy prices."