Finance Secretary Benjamin Diokno on Tuesday said suspending the collection of excise taxes on petroleum products, as House Speaker Martin Romualdez suggested the government could do, would cause “huge damage” to the economy.
Romualdez brought up the proposal after emerging from a meeting with oil company representatives where he asked them to slash fuel prices, which have been rising for 11 consecutive weeks.
The Speaker emphasized Tuesday that the meeting on the proposed excise tax suspension was not conclusive and no finality was arrived at by the panel.
Diokno warned that the government would lose billions in revenue if it suspends VAT and the excise tax on fuel.
“First of all, if you push through with that, what the government will lose—I’ll say the number—is P72.6 billion for just the fourth quarter of 2023,” Diokno told TeleRadyo Serbisyo in Filipino.
“If you do it for the whole of 2024, the government will lose P280.5 billion,” he added.
The Finance chief said this would translate to lost funding for government programs, including social safety nets.
Suspending taxes on fuel would also hurt the country’s debt, credit rating, and programs, Diokno added.
Instead of suspending taxes on fuel, he recommended the “timely and targeted” distribution of subsidies to vulnerable sectors as the best course of action to address the impact of rising fuel prices.
“We recognize public sentiment to address the elevated fuel prices.
However, as a government, it is our responsibility to be cautious in implementing policies that could negatively impact the macro-fiscal stability and sustainability of the country,” Diokno said in a statement Tuesday.
He said congressional proposals to suspend the imposition of value-added tax (VAT) and the excise tax on petroleum products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law will hurt the country’s economic recovery, credit ratings, and overall debt management strategy.
Diokno referred to the suspension of fuel excise tax as “regressive” and “inequitable”, noting that the move will only benefit the top 10 percent of Filipino households who consume nearly half (48.7 percent)of the country’s fuel, compared to the bottom 50 percent households that only consume around 10.2 percent.
Romualdez’s own party-mate in the Lakas-CMD, Albay Rep. Joey SarteSalceda, said policy makers should be careful with suggestions to suspend the collection of the excise tax on petroleum products because “fiscal credibility, if lost, is difficult to restore.”
“Let us exhaust all measures before we touch taxes, the lifeblood of the state,” Salceda said in a statement.
Diesel and kerosene prices have been rising for 11 consecutive weeks, while gasoline prices have been doing so for 10 straight weeks.
Romualdez met with oil industry leaders on Monday and the suspension of the collection of the excise tax on fuel products was included on the agenda.
Salceda echoed Diokno’s recommendation.
“To help the most adversely affected, we need fuel discounts for farmers, fishermen, and the transport sector. We have P9 billion in excess value-added tax (VAT) revenues to use for this purpose,” Salceda said.
He recalled that as early as 2018, he proposed the reduction of the excise tax by P3 when the average Means of Platts Singapore price exceeds US$80 for three months, and increase the tax by P2 when the price is below US$45.
“The additional revenues during periods of low prices can be used for fuel subsidies when prices are high. The leadership is studying this approach. A highly volatile and socially sensitive commodity should not have such an inflexible tax regime,” Salceda said.
But Senate Minority Leader Aquilino Pimentel III warned that the country can expect inflation rates to soar if the high prices of fuel products are not promptly addressed. He said the continued spike in fuel prices would have an impact on the economic well-being of every Filipino.
“The suspension of the excise tax could offer a temporary respite and serve as an effective lifeboat for Filipinos struggling to cope with the sky-high fuel prices,” he said.
Oil firms raised their prices today by P2 per liter for both gasoline and kerosene, with a more significant increase of P2.50 per liter for diesel. An official of the Department of Energy (DOE), meanwhile, agreed with the suggestion of Romualdez for oil companies to share the burden of the high oil prices by absorbing part of the costs in the next three months.
“I do agree if the oil companies can do it, give discounts to the public until December…but we cannot force them because it is not allowed under the Oil Deregulation Law,” DOE Undersecretary Sharon Garin said in an interview with TeleRadyo.
Garin said that while the oil industry is deregulated, she is hoping the oil companies will heed the call to absorb part of the costs and reduce profitability to ease the burden on the transport sector.
She said Romualdez appealed to the oil firms to help the government for three months because the high oil prices are expected to continue until the end of the year.
Garin said the some of the oil firms are already giving discounts to motorists but Romualdez is appealing for more because of the impact on other commodities and to the inflation.
“His appeal is do not increase (prices) because we follow the international market. Maybe reduce the prices…for three months. I don’t think they will lose money. It’s a short-term sacrifice for the oil companies. I think it’s a very good appeal of the Speaker,” Garin said.
She said the oil companies will discuss the proposal with their principals.
DOE oil industry bureau director Rino Abad said in an interview at the Laging Handa briefing that average gasoline prices have gone up to P71 per liter from P64 per liter in May.
He said diesel now ranges from P64 to P70 per liter from around P52 per liter. Abad said the declaration of the Organization of the Petroleum Exporting Countries (OPEC) to cut production by another 1.66 million barrels per day (bpd) in April pushed up prices.
This is on top of the three million bpd reduction that OPEC and its allies previously announced. Abad said the pronouncement of China and Russia to also cut production further affected the global oil supply.
“What’s worse, recently during the ministerial meeting in September they said they will continue the production cut until the end of the year. Immediately after that the oil market report, IEA (International Energy Agency) report came out projecting that by the end of the year there will be a shortfall in daily production 500,000 b/d,” he said.
Infrawatch PH, a think tank, called for immediate and decisive action from the government as the nation faced yet another significant oil price hike Tuesday. Infrawatch PH convenor Terry Ridon said the latest oil price hike is “a severe blow to Filipino households already stretched thin.”
Ridon said Romualdez’s dialogue with oil executives on Monday is unprecedented, as no House Speaker has ever confronted oil price hikes with the same level of urgent intervention. “While we commend Speaker Romualdez for leading the talks in finding a win-win solution to the oil price hikes, we do not have the luxury of time. Urgent action unencumbered by the legislative mill should be pursued,” Ridon said,
The former House energy committee member also supported Romualdez’s suggestion to open the Oil Deregulation Law – Republic Act No. 8479 – for congressional review “This 25-year-old law has long outlived its usefulness.
Initially enacted in 1998, the law has led to frequent and unregulated price adjustments, affecting everything from public transportation to the cost of basic commodities. This law has given oil companies free rein over pricing, and the public pays the price,” Ridon said.
Ridon urged President Ferdinand Marcos Jr. to issue an executive order speed up the suspension of VAT on oil products. “Every moment counts. An executive order can provide immediate relief to millions of Filipinos affected by the unabated price hikes,” Ridon said.
Infrawatch PH also called on the Department of Budget and Management (DBM) to expedite the release of the fuel subsidy it promised the transport sector.
“We see no reason the fuel subsidies won’t reach our PUV drivers. Time is of the essence, as while this is a momentary stop-gap measure, the subsidy remains essential to mitigate the impact of these relentless price hikes,” Ridon said.
The Land Bank of the Philippines assured the public of the fast and timely crediting of fuel subsidies and distribution of cash cards to intended transport beneficiaries nationwide once the prohibition to distribute in compliance to the election spending ban is lifted.
The Land Transportation Franchising and Regulatory Board (LTFRB) is currently working on the exemption from the Commission on Elections (Comelec) to resume the distribution of fuel subsidies. Comelec Resolution 10944 bars the releasing, disbursing or spending of public funds for social welfare programs from Sept. 15 to Oct. 30, in relation to the Barangay and Sangguniang Kabataan Elections next month.