A former Finance chief and several sectoral leaders are supporting the proposed fuel tax hike under House Bill (HB) 4774, the Department of Finance (DoF) said.
In a statement on Wednesday, the DoF said Former Finance Secretary Margarito Teves along with officials of the Action for Economic Reforms (AER), the Tax Management Association of the Philippines (TMAP) and
Washington-based nonprofit research group International Tax and Investment Center (ITIC) supported the provision that seeks to adjust the excise tax on gasoline and index it to inflation.
“Strictly on the proposed excise tax on fuel products, I support the staggered increase as proposed by the Department of Finance,” Teves, an economist and a former lawmaker who was DoF secretary during the Arroyo administration, was quoted as saying.
Economist Jo-Ann Latuja Diosana of AER pointed out the tax on petroleum products “is not just about compensating for the loss from the personal income tax reform but also, together with other excise taxes, is the most effective way in the generation of domestic resources. After all, the burden of taxation on petroleum falls mainly on the richest 10 percent of the population.”
Wayne Barford, senior advisor at ITIC, said during the hearing that “on petroleum, we support the recommendations from the DoF. We support the approach of the DoF. We look forward to good tax reform in the Philippines.”
Maria Lourdes Lim, who represented TMAP during the hearing, said the proposed oil excise tax adjustment “is a compensating revenue measure that would not adversely have an effect on poor and marginalized sectors of the society because fuel prices are expected to be low in the next several years.”
Teves and Lim separately suggested that the panel consider indexing the fuel excise tax to the actual inflation rate by 2020, rather than imposing a flat rate of 4 percent.
“The proposal of the Department of Finance is an automatic 4 percent. If the Department and the Committee will consider the actual inflation rate, we note the actual inflation rate of the past two years has averaged about 2 percent. So I think it’s better to look at the actual inflation rate as indicated by the Bangko Sentral rather than (the) figure of 4 percent,” Teves said.
HB 4774 covers the first package of the proposed Comprehensive Tax Reform Program (CTRP) of the DoF which is anchored on sizable cuts in personal income tax (PIT) rates.
To make up for the expected losses from the PIT cuts, the bill provides for revenue-offsetting measures including a staggered increase in the diesel excise tax from zero to P6 per liter over a three-year period from the second half of 2017 to 2019. By 2020, the diesel excise tax would be adjusted by 4 percent to account for inflation, it added.
Finance Undersecretary Karl Kendrick Chua has explained that to prevent an undue increase in the cost of petroleum products in the future, the CTRP proposal includes a suspension of the rate adjustment if and when global oil prices hit $100 per barrel.
“Pegging the suspension of the tax at $100 per barrel is a ‘psychological barrier’ meant as a safety measure to ensure that fuel excise taxes do not increase indefinitely,” he said.
“However, this is more of a last resort to safeguarding our oil excise system because we do not think that reaching $100 or even $80 is very visible in the near future for three reasons,” he said.
The price of global crude has been much lower than 10 years ago because of the growth slowdown in China, which has significantly reduced demand.
The discovery of shale oil provides the world market with an alternative supply in the future.
The Organization of Petroleum Exporting Countries (OPEC) is unlikely to abruptly cut supply to boost profits because a more important consideration for its member-countries is retaining their market share rather than revenues.
“So given these reasons, the World Bank, the IMF (International Monetary Fund) and many international organizations project that in the next three years, we will have oil at $50 to $60 per barrel,” Chua said.
As for the proposal to index the fuel excise rate to actual inflation, Chua said the DoF “is open” to this suggestion and will restudy its numbers.