The Department of Finance (DOF) on Monday said the country’s economic managers are currently drawing up a targeted subsidy program designed to shield poor consumers from a government plan to raise excise taxes on petroleum products.
An analyst characterized this as a “populist” move from the Duterte administration.
“We are currently developing a targeted subsidy plan, similar to that of Indonesia, where the most vulnerable, especially [when it comes]to the increase in transportation costs, will be protected in a manner like that of the 4Ps (Pantawid ng Pamilyang Pilipino Program),” Finance Secretary Carlos Dominguez 3rd said in a statement.
Dominguez explained that contrary to the common perception that fuel excise tax increases would affect the poor the most, DOF studies show that 60 percent of petroleum products are consumed by the top 10 percent of the country’s top income earners.
“In fact, the top 200,000 households [in terms of salaries and income]consumed 20 percent of the fuel products,” Dominguez, who also heads the Cabinet’s economic cluster, said.
The Finance chief said revenues generated from the fuel excise tax adjustments would be redirected to those who need financial aid the most through targeted subsidies such as cash transfers and increased spending on social protection programs.
For his part, Socioeconomic Planning Secretary Ernesto Pernia said now is the best time to adjust fuel excise taxes when crude oil prices in the market are low and the impact on inflation is almost negligible.
Pernia pointed out that every P1-per-liter increase in fuel prices would translate into an inflation spike of just 0.1 percent.
Dominguez said the general rule in crafting the Duterte administration’s tax reform plan is that “the rich will have to pay more in taxes while the vulnerable sectors of society will be protected through highly targeted subsidies such as the conditional cash transfer program.”
He assured the bottom 50 percent of households and other low-income earners that they would be fully protected through social protection programs and increased investment in human development.
“Tax reform is needed to achieve the larger goals of the administration and to make sure that everybody feels the country’s growth,” he said.
While the Duterte administration’s proposed tax reform package includes cuts in personal and corporate income taxes, it also aims to reconfigure other taxes to raise enough revenues to bankroll its 10-point socioeconomic agenda for inclusive growth.
Based on projections in ongoing discussions on the comprehensive tax reform plan, the government expects to lose P178.3 billion from the proposed cuts in personal income and corporate taxes, but it aims to offset the foregone revenues by generating about P368.1 billion from the proposed broadening of the tax base and reconfiguring or adjusting to inflation of other taxes, the final list of which is still being harmonized by the DOF with those filed by legislators in Congress.
Dominguez said that besides adjusting fuel excise taxes, the DOF is also reviewing the exemptions on the value-added tax (VAT) and zero-rated transactions, as well as tax incentives that were casually given out in the past to businesses to help raise revenues.
Poor and vulnerable consumers who will be affected by the VAT base broadening will also be protected in a similar fashion as the program for fuel excise taxes, he added.
“This is a “populist” move obviously concerned over the backlash from the biggest segment of the population,” A&A Securities marketing and research head Justino Calaycay Jr. told The Manila Times.
Calaycay said imposing higher excise taxes would definitely push prices higher, which will eventually find their way to the end-consumer.
“But politics aside, it is something that we have to do the math on. First, how much is the expected increase in government revenue with the imposition of the excise tax on petrol products? Second, how much ‘subsidy’ will be provided and which products or services will be included? Third, how will higher petrol prices impact on consumption patterns?” he added.
The final question, he pointed out, will show whether higher taxes can make up for both subsidy expenses and consumer spending to spur the economy.
“Overall, the government is trying to strike a balance between leaving consumers with most of their incomes (by lowering taxes, and now subsidies) while on the other hand raising revenue to finance an aggressive public spending program,” he said.