New sin tax may drive prices of sugary drinks by around 30%

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

In a report on Wednesday, Chinabank Research said the National Government’s (NG) 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 Department of Finance (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 liter from P6, while the levy on beverages using high-fructose corn syrup would climb to P40 per liter from P1.

The package also introduces a higher levy on beverages using high-fructose corn syrup worth P40 per liter 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-liter levy. This would result in a 9% price increase for edible ices.

For distilled spirits, the excise tax could rise to P157.21 per proof liter from P74.16, with the DoF proposing to tax premixed alcoholic beverages or alcopops as well. This means alcoholic beverages will be 20% costlier once the measure is enacted.

The DoF likewise wants to put a unified P72.93 excise tax rate per milliliter of salt nicotine, per two milliliters 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,” it added.

Chinabank said the DoF proposal also includes new taxes on automobiles and plastics, but this is expected to have limited direct impact given their smaller weights in the consumer price index (CPI) basket and the potential for consumers to shift to less-taxed alternatives.

OIL PRESSURES

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, fueling 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.”

Core inflation, which excludes volatile food and energy prices, cooled for a second month in a row as it settled at 4.1% in August from 4.2% in July.

According to the Nomura analysts, this was largely due to easing pressures from recreational services and education.

“However, items sensitive to high energy costs are still adjusting higher, including personal care and other services,” Mr. Paracuelles and Ms. Amani added.

They noted this may warrant a fourth straight rate hike by the BSP, with potential further tightening as volatile oil prices and the “Super El Niño” add pressures.

“We reiterate our forecast for BSP to hike by another 25 bps (basis points) in October, but we continue to flag some risks it could deliver more thereafter,” Mr. Paracuelles and Ms. Amani said.

“We believe BSP remains concerned about rising core inflation and emerging upside risks due (to) a combination of still-high uncertainty over oil prices and prospects of a strong El Niño,” they added.

This week, retail pump prices in Metro Manila breached the P100 handle, after oil firms raised gasoline by as much as P5.68 per liter, diesel by P4.31 per liter, and kerosene by P4.62 per liter.

The BSP said inflation will likely peak in the fourth quarter this year as the impact of the Super El Niño feeds into food prices, with risks also looming from volatile oil prices and the minimum wage hike.

Last month, the Monetary Board tightened for a third straight meeting as it sought to preemptively contain inflation risks. It raised its key policy rate by 25 bps to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since it first tightened in April.

BSP Governor Eli M. Remolona, Jr. has left the door open for more hikes as needed to bring inflation closer to their 3% target, with their projected growth recovery providing them more wiggle room.

At the same time, Nomura kept its Philippine growth forecasts at 3.8% for 2026 and 5.6% for 2027, citing low base effects and the government’s catch-up spending that is expected to boost the economy in the latter half of the year.

“Concerns over politics, however, will likely linger, as the impeachment trial of VP (Vice-President) Sara Duterte continues,” Mr. Paracuelles and Ms. Amani added.

Nomura’s growth estimates fall within the government’s 3.5%-4.5% target for this year, and 5%-6% target for next year.

According to the BSP, fiscal measures may propel the economy in the fourth quarter, with a full recovery expected by 2027. It likewise noted that the country’s medium-term economic fundamentals remain solid.

Mr. Paracuelles and Ms. Amani said the central bank will likely remain measured in tightening monetary policy even as it remains vigilant about inflation risks.

The Monetary Board is scheduled to hold two more policy reviews this year on Oct. 22 and Dec. 17. — Katherine K. Chan