Gov’t to tax all imported fuel

In an effort to curb rampant smuggling of petroleum products in the country, the Department of Finance is set to revise taxation procedures for imported fuel, imposing a universal levy on all importers first, and subsequently reimburse those who are determined to have true tax exemption status.

Speaking before the Management Association of the Philippines on Monday, Finance Secretary Cesar Purisima said the move could be “unpopular,” but he stressed that he was committed to fight fuel smuggling, which is estimated to cost the government some P30 billion in forgone taxes and duties annually.

“The (Bureau of Internal Revenue) will issue revenue regulations,” Purisima said. “It’s in the final stages of drafting. We will require all imported fuel to be taxed first.”

Under the present taxation scheme, imported fuel is levied an excise tax of P4.35 a liter for unleaded gasoline, P5.35 for the leaded variety, and P3.67 for jet fuel.

Kerosene, liquefied petroleum gas and diesel are exempted from excise taxes.

The finance chief zeroed in on Subic Bay in Zambales where, he said, “less than 10 percent” of fuel brought into the freeport zone is consumed on the premises.

“Very small portion of the (imported) oil is consumed by legally exempt entities,” he said. “In Subic, my understanding is it’s about 5 percent. Definitely, less than 10 percent is consumed within Subic.”

“The rest is shipped out,” Purisima said. “If it’s shipped out, then it’s subject to taxes.”

Purisima—who is also the de facto head of President Aquino’s economic team—noted that a similar phenomenon has also been observed in other special economic zones where fuel and other inputs needed for business activities within the area are exempted from taxes.

Observers have noted, however, that fuel brought in for consumption within the special economic zone is often spirited out and sold in the local market, allowing certain retailers to price fuel products cheaper and undercut large refiners and distributors like Petron Corp., Pilipinas Shell and Chevron.

“This revenue regulation should be out within the next few weeks,” the finance chief said, repeating his warning that it would “not be popular,” presumably because it would force smaller fuel retailers—some suspected to be selling smuggled petroleum—to price their products closer to those of larger firms.

At present, the BIR and the Bureau of the Treasury are working on a mechanism that will help ensure the timely reimbursement of payments made by legally tax-exempt firms, Purisima said.

He declined to reveal how fast tax-exempt importers would be reimbursed for their upfront payments, but stressed that his department would work to ensure that any lag is reduced to the minimum time possible.

“We’ll work on that mechanism,” Purisima said, adding that reimbursements of tax payments would be made in cash, instead of offsetting these as tax credits against the liabilities of the fuel importer.

“We prefer cash, so we eliminate the possibility of fraud,” he said, referring to the controversial tax credit scheme used in the 1990s that has been abused through the use of fake tax credit certificates.