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By Chino S. Leyco, Reporter
THE Philippines should resist the temptation to
cut taxes in the short-term amid calls to lower the value added tax
(VAT) on oil, the World Bank said Wednesday.
In a report, the Washington-based lender said
fuel taxes are progressive, while removing them are regressive,
citing a household in the highest income decile which spends more
than 10 times as much on fuel related expenses as a household in the
lowest-income decile.
“And the top quintile spends more than seven
times as much on fuel as the lowest quintile. Hence any reduction in
fuel taxes will proportionately reduce tax revenues from the rich
and benefit the rich much more than the poor,” the World Bank
said.
It said any measure the government takes that
would weaken its fiscal stance will reflect negatively on markets
and is likely to increase borrowing rates for the Philippines.
“Any such impact would have additional severe
consequences on the fiscal situation,” it added.
The World Bank said the government should take
the time to develop a longer-term strategy to contend with higher
oil prices, “which are likely here to stay.”
It is important that the Philippines continue to
monitor the impact of the oil price shock on the poor and
contemplate mitigating measures if necessary, the lender said.
Earlier, the International Monetary Fund (IMF)
also called on the government to incur a small budget gap, but not
more than P75 billion to help protect the poor from the consequences
of rising fuel and food prices.
The IMF warned that lifting the 12-percent VAT
on oil would give investors a negative impression of the
Philippines.
Reza Baqir, IMF resident representative, said
the suspension is likely to go the way of the rich and hurt the
poor, who benefit from social programs funded by the oil tax.
“The investor community has rewarded the
Philippines for raising the tax effort, in large part by reforming
the VAT,” Baqir said. “A reversal of these reforms could
threaten to erode recent gains, which would also hurt the poor.”
IMF studies show the poor are better protected
by increasing social spending rather than by reducing energy taxes,
Baqir said. “This is so because the benefits of social spending
are better targeted to the poor than those of reducing gasoline
taxes.”
He added that the government should allocate a
greater share of its revenue to education and health to combat
poverty.
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