RPT Saga: The payer isn’t always the bearer (Part 1)

By Francis Allan L. Angelo

Somebody asked the media to research on the effects of taxes on inflation. But what is inflation, by the way?

Imagine your money has a superpower: buying power.

Last year, you could go to a store with a PHP100 bill and buy a specific set of snacks—let’s say a drink, a bag of chips, and a small chocolate bar. Your PHP100 bill had the power to buy all three.

This year, you walk into the same store with the same PHP100 bill. But when you get to the counter with the same three items, the cashier says the total is now ₱105.

That’s inflation.

The PHP100 bill in your hand is exactly the same, but its superpower—its buying power—got weaker. It can’t buy the same amount of stuff it could before.

Why does this happen? Two main reasons:

1. Things get more expensive to make.The store’s rent went up, the price of gas for the delivery truck increased, or the factory that makes the chips had to pay more for potatoes. They pass those extra costs on to you.
2. Too many people are trying to buy the same stuff.If everyone suddenly has more money and wants to buy chips, the store can raise the price because they know people will still buy them.

The bottom line: Inflation is just the official term for your money slowly losing its power over time. When you hear that inflation is high, it just means your money is losing its power faster, and you have to spend more just to live the same way you did last year. 

The National Shopping Cart

The Philippine Statistics Authority (PSA) figures out inflation by using a method that’s like checking the price of a giant, national shopping cart over and over again.

Think of the PSA having an official shopping cart, which they call the “basket of goods and services.” This isn’t a real cart, but a long list of common items and services that an average Filipino family spends money on.

This list includes hundreds of things:

• Food: Rice, chicken, cooking oil, vegetables, coffee.
• Bills: Electricity, water, and rent.
• Transportation: Jeepney and bus fares, gasoline.
• Other stuff: School supplies, cellphone load, medicine, and even a haircut.

The total price of everything in this exact same basket is called the Consumer Price Index (CPI).

How They Check the Price

The PSA has thousands of people all over the Philippines whose job is to be professional price checkers.

1. They Go Shopping: Every month, these price checkers visit markets, sari-sari stores, malls, and other businesses in cities and provinces, including Iloilo.
2. They Record Prices: They check and record the current prices of all the items on that official “basket” list.
3. They Do the Math: They add up the total cost of the basket for the current month. Then, they compare this total to the total cost of the exact same basket from the same month last year.

The percentage difference between last year’s price and this year’s price is what the PSA announces as the inflation rate.

Simple Example:

• If the PSA’s entire basket of goods cost PHP10,000 to buy in August 2024.
• And the same exact basket now costs PHP10,500 in August 2025.
• The price increased by PHP500.

The PSA calculates that PHP500 is a 5% increase from the original PHP10,000. So, they would report that the annual inflation rate is 5%. It’s just a way of measuring how much faster the prices in the national shopping cart are going up.

Yes, taxes are not in the commodity groups that influence inflation. But taxes trigger a chain reaction or ripple effect that ultimately makes the items in the PSA’s “national shopping cart” more expensive.

Here’s how that works.

Taxes are an Extra Cost

Think of any tax as an extra bill that a business has to pay. Businesses need to make a profit to stay open, so when they get a new bill, they usually don’t pay for it out of their own pockets. Instead, they find a way to pass that cost on to you, the buyer or customer.

This happens in two main ways.

1. The ‘Price Tag’ Tax (Direct)

This is the most obvious kind. The government adds a tax directly to a product, and it shows up on the price tag.

• Example: “Sin taxes” on cigarettes or sugary drinks. A can of soda might cost PHP25 to make and sell, but the government adds a PHP5 sugar tax. You end up paying PHP30 at the counter.

When a tax like this is added, the price of that item in the PSA’s official “basket of goods” immediately goes up.

2. The ‘Hidden’ Tax (Indirect)

This is the more common, trickle-down effect. The tax isn’t on the product itself but on the business’s operating costs. The Real Property Tax (RPT) is a perfect example.

Here’s the chain reaction:

1. The City: Raises the RPT, so landlords now have a bigger tax bill for their buildings.
2. The Landlord: To cover this new expense, they raise the rent for the businesses in their building, like your favorite coffee shop or the local bakery.
3. The Business Owner: Now facing higher rent, the coffee shop owner has to raise the price of your coffee from PHP100 to PHP110 just to cover their bills and stay in business.

The tax wasn’t directly on your coffee, but it trickled down and hit your wallet anyway.

How This Becomes Inflation

Now, imagine this happening to many items in the PSA’s giant shopping cart at the same time.

• Your rent goes up because of the RPT.
• Your coffee costs more.
• The bread from the bakery costs more.
• The food at the local restaurant costs more.

When the PSA’s price checkers go out, they record all these new, higher prices. The total cost of filling the national basket (the CPI) gets higher. When they compare this year’s expensive basket to last year’s cheaper one, the percentage increase is what they report as inflation.

This could also affect fuel prices because pumping station owners either pay taxes directly or rent their locations. Ever wonder why the difference in fuel prices of pumping stations in the province and Iloilo City?

Ergo, spikes or slashes in property taxes will always ripple through prices of goods and services operating on land and buildings.

That’s how a big, sudden tax hike can pour fuel on the fire of inflation – it directly raises the prices of the very things the PSA is measuring.

Correct, Ma’am Lids Amolar?

In the second part, let’s go more sophisticated on how taxes affect inflation, from the point of view of real economists. This has been a fun #research for me.

Source: https://psa.gov.ph/price-indices/cpi-ir/faqs