TRAIN LAW

Manila, Philippines—Tax reforms for Acceleration and inclusion law package 1 has been implemented since January 2018, a priority of President Duterte administration. Train law package 1 (TRAIN LAW P1) is all about improving the quality of lives of Filipinos through tax exemption of people earning php 250,000.00 and below annually. As previously discussed, people will now have a larger take home-pay of their income using the new tax rates as provided by the train law p1, thus increasing the purchasing power of consumers.

But how this train law p1 encourage inflation? Inflation is known as the rate at which the general level of prices of goods and services is rising, thus decreasing the purchasing power of the currency. In simple words, inflation is how fast the general prices of goods and services rises. The higher the rate, the lower the purchasing power of the currency. Why does the train law p1 encourage inflation where in fact, people now have larger income because they have now larger take home pay? To answer this question, we need to know how inflation happens. Inflation happens because of several factors including the consumer confidence and decrease in supply. Consumer confidence simply means when consumers have good source of income just like today in which people have higher take home-pay compared before, they are more likely to spend money. Because of this confidence, manufactures and other forms of businesses take advantage to increase their goods and services prices.

Decrease in supply happens because demand is increasing due to higher take-home pay. When demand is increasing the available supply is decreasing, thereby, businesses sell their goods and services at high prices because they know people will still buy and that they know that available supply is decreasing. This is a simple analysis of inflation. In general, inflation happens because of consumer confidence and decreasing in supply.