MANILA, Philippines—The Department of Finance (DOF) on Monday (Nov. 15) reiterated that the move in Congress to suspend the collection of oil excise would deprive the government of up to P147.1 billion in revenues in 2022, which should have been spent on projects to sustain economic recovery from the pandemic-induced slump.
In a statement, Finance Undersecretary Gil Beltran, also the DOF’s chief economist, also warned that higher-income households who could afford to spend on gas anyway would benefit the most from oil excise suspension.
“The unrealized public spending and investments from the foregone revenues will be detrimental to our economic recovery and long-term growth,” said Beltran.
“A more equitable way to address the impact of higher fuel prices is to provide targeted support to the vulnerable groups, particularly the transportation sector, which the government has already committed to do,” he said.
Last week, the House committee on ways and means approved a substitute bill to suspend or reduce excise on petroleum products for six months. The committee wanted to suspend or bring to zero the excise slapped on diesel, kerosene and liquefied petroleum gas (LPG) while reducing the rate on low-octane gasoline.
The House’s estimated foregone revenues was a lower P45 billion or about one-third of the DOF’s projection equivalent to about 0.5 percent of gross domestic product (GDP).
“While consumption will be slightly higher at an estimated incremental of 0.6-0.7 percentage point (ppt), [GDP] growth will actually be lower by 0.1-0.2 ppt, if the excise tax and VAT on it are suspended,” Beltran said, referring to the 12-percent value added tax.
Also, “with the suspension of fuel excise taxes, we will lose the improvements we made under TRAIN in making the tax system more equitable, in which those who are more financially capable pay more taxes,” Beltran said. He was referring to the Tax Reform for Acceleration and Inclusion Act, which slapped excise on bunker and diesel fuel oil, kerosene, as well as LPG since 2018, from zero previously.
Citing DOF estimates, Beltran said “higher income households are estimated to benefit 60-percent more than lower income households from the suspension of fuel excise taxes.”
“With the tax relief that would accompany the suspension of fuel excise taxes, the disposable income of the top 10 percent of households is estimated to increase by around 0.63-0.82 percent on average in 2022,” he said.
“Meanwhile, the disposable income of the bottom 50-percent of households is estimated to increase by only around 0.34-0.45 percent,” he added.
Beltran said targeted subsidies would be the “more equitable way” to ease the impact of high oil prices.
The Cabinet-level Development Budget Coordination Committee (DBCC) earlier approved P1 billion which will be disbursed by the Land Transportation Franchising and Regulatory Board’s (LTFRB) to drivers of public utility vehicles (PUVs).
“Once spent, the cash grants are estimated to result in an incremental P2.9-billion worth of growth in the economy,” Beltran said.
At a House ways and means committee hearing on Monday, Customs Deputy Commissioner Teddy Sandy Raval said oil importation volume declined year-on-year as of October, but the Bureau of Customs still expected this year’s take to exceed last year’s VAT collections.
BOC data showed that end-October oil imports totaled 9.6 billion kilograms, while full-year importation in 2020 reached 12.9 billion kgs.
As of end-October, the BOC collected P64.7 billion in excise and P39.4 billion in VAT from imported oil. In 2020, total collections reached P100.3 billion in excise plus P44.6-billion VAT.
In a text message to the Inquirer, Raval said the lower year-to-date oil imports volume was “very likely” a result of high global prices as well as supply chain issues.
The government was nonetheless fighting oil smuggling, with a total of P312.4 billion in import duties and other taxes collected from 31.8 billion liters of tax-paid oil since the fuel marking program started in September 2019 until Nov. 5, Raval said.
Raval said that 25 oil firms and one oil refinery were participating in fuel marking, wherein a chemical marker was being injected into diesel, gasoline and kerosene to signify payments of correct taxes.
He said that prior to the fuel marking program, which was also put in place by the TRAIN Act, the government lost P27-44 billion from oil smuggling yearly.