President Duterte approved on Tuesday night the proposal of the Department of Finance (DOF) not to suspend the collection of the excise and value- added taxes (VAT).
DOF Secretary Carlos Dominguez at the Talk to the People yesterday said the anticipated P147.1 billion to be collected from fuel excise tax and VAT this year had been allocated for some projects and expected expenditures such as those under the Build, Build, Build program and the salaries of government employees including soldiers, policemen, and teachers.
Dominguez said suspending the excise and VAT on fuel amid the rising cost of petroleum products would reduce the government’s revenues this year by at least P105.9 billion.
“That money has been allocated, and if we suspend this and we don’t collect it, what will happen is our deficit-to-GDP ratio will go up from an estimated 7.7 percent to 8.2 percent and it will mean that if we will continue to spend the same amount of money, we will have to borrow more money,” he added.
He said if the per-barrel cost of crude oil in the world market hits a high of $130, this would correspond to about P 37.5 billion in additional VAT collections.
Dominguez said with global crude prices at $ 110 per barrel (as of Tuesday night), estimates point to a P26 billion additional VAT collections.
Communications Secretary Martin Andanar said the DOF’s recommendation shall be the “policy of the Executive Department.”
“The proposal (to suspend tax collection) will be detrimental to our fiscal position. The foregone revenues will lead to an increase in our country’s deficit in 2022, from 7.7 percent to 8.2 percent of GDP, if the same level of government spending will be maintained to support economic recovery,” he said.
Increased borrowings, in turn, will push up the debt-to-GDP ratio in 2022, from a projected 60.9 percent of GDP, to 61.4 percent of GDP.
Dominguez said the DOF’s computations show that higher VAT collections from rising fuel prices are sufficient to cover the targeted subsidies to be given to vulnerable sectors of the economy.
Dominguez acknowledged suspending the excise tax could reduce the cost of fuel by around P10 which would mostly benefit the people who are rich, have cars and are part of the top 10 percent of income earners who consume almost 50 percent of all the fuel in the country.
Dominguez said the proposal to suspend fuel excise taxes will only provide temporary and minimal relief to consumers, as the prices of goods are expected to go down by only 0.03 percentage points (ppt) in 2022.
The trade off would be unrealized government spending from the foregone revenues, which will hamper the Philippines’ economic recovery and result to slower growth by 0.4 ppt in the short run and 0.03 ppt in the long haul, he said.
The excise tax on gasoline before the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law was P4.35 per liter, while there were no excise taxes collected from diesel, kerosene and liquified petroleum gas (LPG).
This tax remained unchanged from 2005 to 2017, even when the prices of petroleum products increased.
Under TRAIN, the excise tax rates were updated for the different types of fuel to adjust for increases in prices.
The current rates for the major petroleum products are as follows: P10 per liter for gasoline, P6 per liter for diesel, P5 per liter for kerosene, and P3 per liter for LPG.
These excise taxes are fixed on a per liter or per kilogram (kg) basis, and do not change depending on the cost of fuel
Dominguez said the TRAIN Law provides a safety net provision to address possible fuel price shocks that may be triggered by the increase in excise tax rates and other market factors.
However, this provision only refers to the excise tax increases mandated under the TRAIN Law, which have already taken place on January 1 of 2018, 2019 and 2020.
Thus, the TRAIN Law cannot be invoked anymore to suspend fuel excise taxes, he said. Jocelyn Montemayor and Ruelle Castro
