Tax increase for oil products looms

The Department of Finance (DOF) sees higher oil excise as a major revenue source that will compensate for foregone revenues once income tax rates are slashed, as promised by President Duterte.

At the House appropriations committee hearing on the proposed P3.35-trillion national budget for 2017, Finance Secretary Carlos G. Dominguez III also reiterated the Duterte administration’s plan to prioritize the reduction in personal and corporate income tax rates, which at 32 percent and 30 percent, respectively, were among the highest in the region.

As such, he said the government will propose a system that will slap more taxes on consumption.

“As a general rule, the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through highly targeted subsidies such as the conditional cash transfer program. We will ensure that the ordinary workers and the bottom 50 percent of households will be fully protected through social protection programs,” the finance chief said.

Dominguez noted that the excise tax being levied on oil products “has not been adjusted for two decades, and the significant drop in oil prices gives us an opportunity to adjust to inflation.”

Based on the DOF’s proposed comprehensive tax reform package earlier turned over to Dominguez by former finance Sec. Cesar V. Purisima, an excise tax increase on gas, diesel and other oil products would bring an estimated revenue gain of P178 billion in the first year of implementation.

At present, petroleum products are being taxed at varying rates, ranging from exempt to P4.50 per liter or kilogram, the DOF had noted in a report.

The DOF’s proposal was to hike during the first year to P10 per liter the levy on regular gasoline and other products that are presently imposed positive excise tax rates, such as aviation turbo jet fuel, lubricating greases and oils, leaded and unleaded premium gasoline, naphtha, as well as petrolatum and waxes.

An increase to P6 per liter, meanwhile, had been proposed by the DOF for diesel as well as other products currently exempted from excise tax, including asphalts, bunker fuel oil, denatured alcohol used for motive power, kerosene, liquefied petroleum gas (LPG), and processed gas.

“The P10 per liter rate was derived by indexing the existing excise tax rate of gasoline (of P4.35 per liter) by cumulative inflation factor of 2.37 (for the years 1997 to 2014) then applying the same amount of increase (P5.96, rounded off to P6) to diesel,” the DOF had explained.

The DOF proposal also sought the indexation of excise tax rates by 4 percent every year.

The government nonetheless should provide a subsidy when crude oil prices hit over $90 per barrel, according to the DOF.

“The tax reforms we intend to present Congress aim to lower tax rates and broaden the tax base to align with the systems prevailing in our neighboring economies,” Dominguez said, referring to the revenue-positive comprehensive tax reform package that the DOF will submit next month for legislative action.

Even as the cut in income tax rates will result into foregone revenues totaling P174 billion in the first year of implementation, Dominguez pointed out that this would also result in higher take home pay for workers and bigger spending capacity for consumers.

Besides the proposed higher levy on oil, Dominguez said they were also “looking at a tax on sugary and fatty foods to encourage consumers to buy healthier food, akin to the sin taxes,” that would generate P20 billion in extra revenues.