Suspending VAT on petroleum

PRESIDENT Aquino, in his inauguration speech, said with conviction, “Kayo ang boss ko, kaya’t hindi maaaring hindi ako makinig sa mga utos ninyo (You are my boss, and I must obey your orders).”

Poor Juan de la Cruz, who happens to be the boss, is now in a quandary while watching the seemingly endless increases in oil price. What can the boss do now? Should the boss require the President to suspend the Value Added Tax (VAT) on petroleum?

VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services. By law, therefore, the VAT is automatically added to the value of goods, services, exchanges. Thus, the final consumers bear the burden of paying the VAT.

Final consumers include all Filipinos, whether rich or poor. However, the difference lies in the impact of the added tax burden to them. To the rich, the amount is immaterial, but to the common people, the amount may be enough to buy other necessities that they use on a day-to-day basis.

Ergo, the lifting of VAT may go a long way to an ordinary Filipino.

Dubbed one of the most dangerous places to be a bus driver in the world, the Philippines serves as home of drivers who swerve here and there, while commuters cross the streets at their own convenience. The problems of our transportation system, like so many other problems, have been left unsolved. For now, just like in previous years, these problems will have to be set aside because of the more pressing problem of oil price hike.

Out of a driver’s income, a portion goes to the owners of vehicles for what they call boundary, a portion goes to petroleum expenses, which is over and above the boundary, another portion is for VAT on petroleum, and the rest goes to the driver’s family.

Two alternatives have surfaced in the light of the recent round of oil price increases and the implementation of Pantawid Pasada Program which, by the way, has been criticized for its insufficiency to address the problem and for failing to cover the fishermen and farmers, and other sectors who are using petroleum in their operations, not to mention the working class who pay VAT on oil directly or indirectly.

The first option is to temporarily lower the petroleum VAT by 9 percent, and the second is to temporarily suspend VAT on petroleum, entirely. Either way, there will be administrative implications. The software must be reprogrammed and BIR processes must be followed.

The government, together with some economists, argue that the suspension of VAT will mean loss of income needed to support vital projects. However, it has been reported that an estimated P4.5 billion (and increasing) in windfall was gained by the government on the oil price increases. Add this amount to the Pantawid Program budget and we may be able to fund the loss of income that the suspension of VAT will cause.

For years, drivers of both the private and public utilities, including the operators, have paid the VAT and maybe just this once, government should allow them to rest, even for a while, and make these taxes work for them.

It cannot be denied that the government has generated revenue from VAT on petroleum for the longest time. It is also apparent that government is willing to do something to address the problem. What we can only do is to choose the best option. Juan de la Cruz must be able to enjoy the benefits of the taxes they paid. To me, the suspension of VAT is a solid, fair and just alternative. The beneficiaries will directly receive the help given by the government without any intervention.

Whatever alternative will be chosen, the choice must be made in the earliest possible time. Lowering or suspending the VAT on petroleum will require the nod of Congress and of course the President. Processes must be started for Juan de la Cruz to be able to survive his current predicament. However, the situation should not be used to discredit the President. In this situation, every sector loses something. What we are looking for is an alternative which will lessen the loss for us, the stakeholders, the bosses. Proper consultation is a must.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a tax partner of Endriga, Manangu, Aguilar & Associates, CPA’s, Tax and Management Consultants. Feedback at [email protected]. For previous articles, visit map.org.ph.)