Despite an increase in excise tax on fuel, consumers could actually expect more purchasing power from the revised tax reform bill approved by the House of Representatives on Wednesday, an investment bank said.
"We disagree with the consensus view among investors that the tax reform bill is negative to private consumption," Credit Suisse analyst Michael Wan said in a research note on Thursday.
"For one, the latest substitute bill is more supportive of private consumption compared with the original tax bill filed on January 2017," he added.
Voting 246-9 with one abstention, the Lower House had approved on final reading House Bill 5636, containing the first of the four tax reform packages of the Duterte administration.
The bill, which was revised from its original form under HB 4774, mandates the lowering of personal income taxes, while increasing excise levies in oil, cars and imposing a new one on sugary products.
For Wan, the contentious fuel excise tax hike is not expected to dent consumer demand since increases of P6 per liter had been staggered until 2020 from the original 2019.
Aside from fuel taxes, the bill also imposes a new sugar-sweetened beverage tax of P10 per liter. Car excise levies for importers will also be raised.
"The tax hikes imply a lower peak and also more spread out path for inflation," Wan said.
Social support coming from the bill will also "offset" the negative impact of tax hikes, he said.
Incremental revenues to be generated from the higher fuel levies will be channeled to support public utility drivers for four years, up from the original measure's three. Cash transfers to the poor will also be funded.
Household income from cash transfers will add to additional take-home pay expected to from the lowering of personal income taxes, Wan said.
More than 80 percent of taxpayers will effectively be exempted from paying income taxes under the bill, while those currently paying a maximum rate of 32 percent will see that go down to 25 percent.
Meanwhile, the "ultra-rich" individuals earning up to P5 million annually will see their income tax rate rise to 35 percent.
"We estimate inflationary impact from tax hikes alone will cut aggregate private consumption spending by around 0.6 percent by end-2018 based on our model estimates," Wan said.
"Conversely, personal income tax cuts could add around 1 percent to private consumption spending, but with the extreme assumption that consumers spend all their gains to incomes," he added.
To this end, Wan said the current version of the tax reform bill could lead to a credit rating upgrade, specifically from Fitch Ratings, but admitted "more resistance" at the Senate could be expected.
The Senate will tackle the bill once a new session opens on July 24.
Senate ways and means committee chair Sonny Angara has said the chamber will not pass the current bill's version.
"Any such dilution could be negative for the country’s credit rating prospects and could eventually also limit the government’s planned infrastructure drive," Wan said.