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The headquarters of the International Monetary Fund in Washington, D.C.

IMF urges higher fuel tax as oil prices fall

By Riza Lozada

The International Monetary Fund (IMF) raised the need for the government to increase the fuel tax to recoup lost revenues as a result of the dwindling prices of oil products.

Chikahisa Sumi, the head of the IMF mission that recently visited the country, said the increase in fuel excise taxes becomes more urgent if a tax package that would entail a net revenue loss, such as the recommended lowering of personal tax rates, is passed in Congress.

The Department of Energy’s (DOE) Oil Industry Management Bureau (OIMB) told The Market Monitor, nonetheless, that the Aquino administration’s “no new tax” policy covers petroleum products.

A DOE spokesman said tax reforms entailing higher rates on fuels have been implemented in the past primarily from 2006 to 2010 with the imposition of Executive Orders 527, 691, 850, 851, and 890, which are all related to an increase in the fuel tax.

Currently, excise tax on gasoline is P4.35 per liter, but the IMF recommended that excise tax on petroleum products needed to be raised as part of revenue enhancement measures at least before 2016 to raise the excise-tax collections on petroleum products to 0.42 percent of the gross domestic product (GDP).

The IMF has been pushing for the adjustment of petroleum taxes since 2012 to augment government funds for various infrastructure development.

“To support a higher level of budgetary spending on infrastructure and social needs over the medium term, additional fiscal revenue would need to be raised. In this respect, the IMF strongly encourages a comprehensive tax-reform package that is net revenue enhancing,” Sumi said.

The government has implemented a “no new or higher tax” policy for the past three years prior to 2014 with only the tax reforms on sin taxes for alcohol and tobacco products being implemented.

President Aquino, according to analysts, is not likely to adopt the IMF recommendation that is considered unpopular and may spell political disaster going into 2016.

Tax collections are threatened by the sharp drop, nearly by half, in world oil prices with Department of Finance estimates showing that the potential revenues missed reaching P40 billion a year.

Former Budget Secretary Benjamin Diokno said more tax-eroding proposals are expected in the run-up to the elections.

“They are what I call pork barrel on the tax side,” he said.

Diokno said lower oil prices will also mean shrinking resources mainly because the government relies heavily on taxes imposed on fuel.

In planning the 2005 budget, the economic managers assumed that the Dubai Crude Oil price would be from $90 to $110.

As a result, the study showed the Development Budget Coordination Committee (DBCC) has cut the government revenue target by P62 billion, from P2.337 trillion to P2.275 trillion.

The revenue target for the Bureau of Internal Revenue was cut by P50 billion from P1.72 trillion to P1.76 trillion, while the revenue target for the Bureau of Customs was cut by P20 billion, from P456 billion to P436.5 billion.

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