The government proposal to adjust the diesel excise tax to P6 per liter will have “minimal and manageable” impact on the majority of Filipinos, the Department of Finance (DOF) assured public transport operators and drivers following their brief rally in front of the DOF compound in Manila on Friday.
Finance Undersecretary Karl Kendrick Chua explained that to reduce the effect of this proposal on vulnerable sectors, the government will implement targeted cash transfers to offset the would-be slight increase in transport and food prices on the poorest 50 percent of households.
As this developed, Senator Sherwin Gatchalian on Friday expressed his opposition over the proposal to impose excise tax on cosmetics and beauty products instead of raising taxes on fuel saying such move would not only fail to provide the government the needed revenue, but also prevent the growth of the industry.
Gatchalian, chair of the Senate Committee on Economic Affairs, earlier said that he supports the executive department’s plan to impose higher excise tax on fuel as one of the means to compensate for the expected foregone revenues from the planned lowering of income tax.
AKO Bicol Representative Rodel Batocabe recently asked the Department of Finance to tax the Philippine beauty industry, instead of raising taxes on petroleum products.
But Gatchalian explained that the proposed 10 to 30 percent vanity tax is projected to generate only P6 to 19 billion in tax revenue which is just four to 13 percent of the P148.2 billion revenue expected from the proposed fuel excise tax.
The senator added he will support the imposition of new fuel excise tax rate as long as the government can ensure any negative impact on consumers would be averted.
The DOF said it will 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, he said.
Chua also corrected misconceptions that higher fuel taxes would drive up food prices, pointing 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 increased by only 3.6 percent and overall consumer prices 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,” he 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, Chua said, is because fuel accounts for only 30 percent of PUJ revenues and the government came up with the Pantawid Pasada program precisely to minimize the impact of high diesel prices on public transport costs.
At the same time, he said, food prices increased by only 5.5 percent, which is minimal compared to the 100 percent increase in fuel prices.
“Also, the economy was growing, resulting in higher incomes for many Filipinos. All these mean that the increase in fuel excise is manageable and minimal,” Chua said.
Instead, the DOF said, adjustments will be felt more by rich families that actually account for around 50 percent of the country’s fuel consumption.
“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 the Congress the adjustment of fuel excise taxes as one of the revenue-offsetting measures under the Comprehensive Tax Reform Program (CTRP).
Chua said that with global oil prices down and expected by experts to remain low in the nexty few years, the government is losing an estimated P145 billion in potential annual revenues, 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.