Palace, Congress row shifts to fuel tax hike bid

After a bitter clash over the increase in the Social Security Sys­tem (SSS) pension, the legislature and the Palace are again pitted against each other over the proposal of the Department of Finance (DoF) for an increase in excise taxes on fuel as a measure to compensate for the proposed law to lower income and corporate taxes.

Senators have shot down the proposal that Budget Sec­retary Benjamin Diokno said would raise for the government some P8 trillion to P9 trillion in additional revenues until 2022 when President Duterte’s term ends.

Under Diokno’s proposal, diesel fuel would be taxed at P6 per liter while the tax on gasoline would be increased from P4.35 to P10 per liter.

“I’m against it, there is no fiscal crisis,” said Minority Lead­er Ralph Recto. The timing is also bad; oil prices are on their way up. Just improve collection efficiency and stop smug­gling.”

Majority Leader Vicente Sotto III, along with Senators Francis “Chiz” Escudero and Leila de Lima said the propos­al should first be studied carefully before being presented to Congress for deliberations.

But the Department of Finance (DOF) said that with global oil prices still low and expected to remain at current levels for the next few years, the government is losing an estimated P145 billion in potential rev­enues yearly or about one percent of the country’s gross domestic product (GDP) be­cause gasoline excise taxes have remained the same in the last two decades and die­sel products have been tax-free for the past 12 years.

Finance Undersecretary Karl Kendrick Chua said the government is now propos­ing to correct these flaws in the country’s tax system by adjusting fuel excise taxes and later indexing these to inflation to compensate for proposals to lower person­al income tax (PIT) rates and provide direct cash transfers to the poor.

But Sotto said other sources of revenues should be considered before im­posing higher taxes on fuel, which he said would impact heavily on the public.

“I will study the proposal, but offhand, that seems too much, “Escudero said. “They (proponents of the excise-tax raise) would first have to show and prove that they have exhausted all efforts to collect existing taxes and that they can actually spend that money, especially given our experience last year with low absorptive capacity.”

Escudero said he was not convinced of Diokno’s view that the tax increase would be cushioned by the lowering of income taxes.

“The increase in taxes far outweighs the net effect of lowering of income tax rates,” the senator said.

Sen. Leila de Lima said the proposal was unaccept­able, especially since those who will likely bear the brunt of the increase will be those from poorest segment of the society.

“Finally, is this neces­sary? Last year, they dropped the collection targets for BIR (Bureau of Internal Revenue) and BOC (Bureau of Cus­toms) and now they want to impose additional taxes to in­crease revenue? Maybe they should focus more on fulfill­ing the President’s campaign promise to curb corruption in these revenue-collection agencies to increase collec­tion efficiency,” de Lima said.

Among his peers, Sen. Panfilo Lacson was the only one who said he was inclined to support the idea, provid­ed, however, that there was a mechanism to cushion its im­pact on public transport and other industries.

“Having said that, I need to see how they (proponents) will put that mechanism in place and find out if it is effec­tive or at least implementable. To clarify, the public transport and freight services kasi ang gumagamit ng diesel fuel. I don’t care about the die­sel-fed SUVs since those in the affluent sector who are using the same can afford higher diesel prices,” Lacson said.

The DOF insisted that public transport operators and drivers would not suffer in the adjustment of the diesel excise tax to P6 per liter.

Said Chua: The increase will have “minimal and man­ageable” impact on the ma­jority of Filipino. “This will be felt more by rich families that actually account for around 50 percent of the country’s fuel consumption,” Chua, a former World Bank econo­mist, added.

To reduce the effect of the proposed tax-rate adjust­ment on vulnerable sectors, the government plans to im­plement various initiatives, in­cluding targeted cash trans­fers on the poorest 50 percent of households to offset the slight increase in transport and food prices expected from the fuel-tax increase.

The government will also help the transport sector and commuters by reintroducing the “Pantawid Pasada Pro­gram,” and help public-utility jeepneys (PUJs) modernize their engines to be more fuel efficient, Chua also said.

He said jeepney drivers plying the España Boulevard (Manila) to Project 2-3 (Que­zon City) route, for instance, spend some P700 a day in fuel and earn around P2,000. With the higher diesel excise tax, they will spend an addi­tional P150, Chua noted.

“However, this will have minimal effect on their in­come and on fares once the targeted transfer, the Pan­tawid Pasada, and the jeep modernization program are implemented,” he said.

“The jeep moderniza­tion program can potentially reduce fuel consumption by P350 (or a 50-percent im­provement) while the Pantaw­id Pasada can keep any fare increase to a minimum. With higher take-home pay due to lower income taxes under the tax-reform program and the cash transfer to the poor and vulnerable, the effects of the slight increase in fares could be lessened further,” Chua said.

The DOF official also cor­rected misconceptions that higher fuel taxes would drive up food prices.

He pointed out that from January to December 2016, diesel prices increased by P10 per liter, representing a 50-percent increase from around P20 to P30.

“However, food infla­tion was only 3.6 percent and overall consumer prices rose by just 2.6 percent. This is because the economy is well managed and people are benefiting from growth in the form of higher income and wages. With stronger government effort to improve agriculture productivity and build more infrastructure, in­flation can even be managed better,” Chua said.

He pointed out that even when diesel prices doubled from around P20 to P40 per liter between 2010 and 2012, the base fare for jeepneys increased only from P7 to P8.50.

The minimal increase happened since fuel ac­counts for only 30 percent of PUJ revenues and the gov­ernment came up with the “Pantawid Pasada” program to minimize the impact of high diesel prices on public trans­port costs.

At the same time, Chua said, food prices increased by only 5.5 percent, which is minimal compared to the 10- percent increase in fuel pric­es.

“Also, the economy is growing, resulting in higher incomes for many Filipinos. All these mean that the in­crease in fuel excise is man­ageable and minimal,” Chua said.

Given that the top 10 percent of households (com­prising the richest 2 million households) account for al­most 50 percent of all petro­leum consumption, while the top 1 percent (comprising the richest 200,000 house­holds) account for 13 percent of all petroleum consump­tion, Chua said that raising oil excises means that “we would stop subsidizing the consumption of the rich and instead use the additional tax revenues to fund infrastruc­ture and protect the poor.”

“Our proposal to adjust the fuel excise tax to around P6 per liter merely updates the rates to current levels as this represents the cumula­tive inflation since 1997. Even with the adjustments, the retail prices of gasoline and diesel will still be much low­er than the rates during the oil price shocks of 2011 and 2012,” Chua said.

The DOF has proposed to Congress the adjustment of fuel excise taxes as one of the revenue-offsetting mea­sures under the Compre­hensive Tax Reform Program (CTRP).

The tax reform plan is meant to help the Duterte administration raise enough funds to finance its ambitious program to fill the infrastruc­ture backlog left behind by previous governments, and which has hurt the country’s regional competitiveness as an investment haven and has made majority of Filipinos less productive.

Tax reform is needed so that the government can in­vest P1 trillion more each year on top of the current P1.3 tril­lion it invests in the domestic economy, Chua said.

Earlier, 19 former heads and deputy chiefs of the DOF and the National Economic and Development Authority (Neda) have given their full support to the CTRP, which, they said, would “correct the structural weaknesses” of the country’s system and serve as a tool to decisively attack poverty and achieve inclusive growth.

Comprising 12 former DOF and Neda bosses and seven finance undersecre­taries, they “fully endorsed” the DOF’s tax-reform pro­posals as they expressed in a manifesto their solidarity with the Neda goal of trans­forming the Philippines into a “prosperous, predominantly middle-class society” in one generation or by year 2040.

“We, the former secretar­ies and undersecretaries of the DOF and the Neda fully support the DOF’s compre­hensive tax-reform program as a long-needed corrective to our tax system’s structur­al weaknesses and as a tool to achieve inclusive growth and transformative poverty reduction in our country,” the erstwhile senior government executives said in their joint statement.

They said that, “The DOF’s proposed comprehen­sive tax reform is progressive, timely, and well-crafted to achieve the vision of a pros­perous Philippines free of poverty. For these reasons we strongly support the re­form and urge the public to do the same.”

The manifesto was signed by former Finance Secretaries Cesar Virata, Jose Isidro Camacho, Je­sus Estanislao, Roberto de Ocampo, Jose Pardo, Cesar Purisima, and Juanita Am­atong; and former Neda Di­rectors-General Arsenio Bal­isacan, Emmanuel Esguerra, Cielito Habito, Felipe Medal­la, and Romulo Neri.

It was also signed by ex- DOF Undersecretaries Ro­meo Bernardo, Joel Bañares, Cornelio Gison, Lily Gruba, Milwida Guevara, Jose Em­manuel Reverente, and Flor­encia Tarriela.

“Overall, tax policy re­forms are needed to make the tax system fairer, simpler, and more efficient, to put more money in people’s pockets, and encourage investment, job creation, and poverty re­duction, while making our country more competitive regionally,” they said in the manifesto.

“The personal in­come-tax reform is long overdue and is a welcome move,” they said. “This needs to be complemented by rev­enue-enhancing measures to ensure that the poor and vulnerable are provided bet­ter education and health ser­vices, as well as benefit from better infrastructure,” the manifesto said.