By Luisa Maria Jacinta C. Jocson, Reporter
THE PROPOSAL to suspend fuel taxes could help tame inflation and provide relief for vulnerable sectors, analysts said, but also warned of its consequences.
“In terms of the impact on inflation, we think the suspension of excise tax on fuel products will help tame consumer price index (CPI) inflation, possibly subtracting about 0.5 ppt (percentage point) from the headline figure,” Makoto Tsuchiya, assistant economist at Oxford Economics, said in an e-mail.
Lawmakers earlier proposed the temporary suspension of fuel taxes to address a recent spike in pump prices that is threatening to stoke inflation.
Oil companies reduced pump prices this week by P0.20 per liter of diesel and gasoline, and P0.50 per liter of kerosene. However, these price adjustments still resulted in a year-to-date net increase of P17.30 per liter of gasoline, P13.40 per liter of diesel and P9.44 per liter of kerosene.
“We do not think it would be viable for the government to suspend the excise tax and VAT (value-added tax) on petroleum products in the wake of increasing prices. This would erode revenue collections by subsidizing the higher income households,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.
Finance Secretary Benjamin E. Diokno earlier said the proposed fuel tax suspension is “short-sighted, ill-advised, and (may) have serious consequences.”
The Department of Finance estimated that revenue losses from the suspension of VAT and excise tax on petroleum products could reach up to P72.6 billion, or around 0.3% of gross domestic product (GDP), in the fourth quarter alone. Revenue losses could go up to as high as P280.5 billion or 1.1% of GDP if fuel tax collection is suspended in 2024.
“We also share the concern over the impact the suspension will have on government revenue, especially at a time when fiscal consolidation is much needed given the higher public debt. Unless this is accompanied by a reduction in spending, the resulting higher fiscal deficit will further narrow the already limited fiscal space,” Oxford Economics’ Mr. Tsuchiya said.
Alberto R. Dalusung III, Energy Transition Advisor of the Institute for Climate and Sustainable Cities (ICSC) said in an e-mail it could be more harmful to suspend collection of much-needed taxes since it would reduce government revenues.
Raymond T. Zorrilla, senior vice-president for external affairs of Phoenix Petroleum Philippines, Inc., said in a Viber message that the revenue loss would also “hinder completion of government projects and social amelioration programs that are funded by these taxes.”
Mr. Tsuchiya also noted that the proposal may not benefit the poorest, as they are less likely to own vehicles.
“So, this will benefit the most those working in the passenger transport services (who is partly also benefiting from subsidies) and those who own their own vehicles, i.e. those relatively better off,” he added.
House Committee on Ways and Means Chairman and Albay Rep. Jose Ma. Clemente S. Salceda earlier noted that the Tax Reform for Acceleration and Inclusion must be amended by Congress in order to suspend fuel taxes.
Eleanor L. Roque, tax principal of P&A Grant Thornton, also said that provisions in the Tax Code allowing suspension of excise tax on petroleum upon reaching the threshold prices have already lapsed.
“Hence, there is a need to provide an amendatory law to cover emergency situations like what we are experiencing now,” she said in a Viber message.
“But I think the government cannot turn a blind eye on the current situation. Hence, the lawmakers should act fast to enact the needed law and maybe this is a good instance for certifying a bill as urgent,” she added.
On the other hand, there are also potential benefits to suspending fuel taxes.
“Suspension of taxes on fuels will benefit the public and encourage travel, increase purchasing power and might lower production costs for industries dependent on fuels,” Mr. Zorrilla said.
Transport groups also voiced their support for the proposal. Manibela President Mar S. Valbuena said that they would prefer that the government suspend the collection of excise taxes on fuel than the distribution of fuel subsidies.
“We do not feel the effects of subsidies because the prices of fuel are so high. Those subsidies will only last us a few days. We really feel the effect of the rising prices of fuel,” he said in mixed English and Filipino in a Viber message.
Piston President Modesto Floranda said that the government should have removed fuel taxes long ago.
“This has been our call for the longest time. Not just suspend, but completely junk the implementation of these taxes on fuel,” he said in mixed English and Filipino in a phone call.
“Right now, the fuel subsidy is P6,500. If we consume around 20 liters per day, that subsidy only lasts three days for drivers and operators,” he added.
Mr. Floranda also said that subsidies may temporarily help drivers and operators, but this will not solve the issue of rising prices.
“Subsidies shouldn’t be for just one sector, as all consumers are victims of elevated prices,” he added.
China Bank’s Ms. Velasquez said there is a need to subsidize the transport sector to prevent fare hikes that could stoke inflation.
“An important factor would be the timeliness and target effectiveness of any subsidy. That is, it should be released as soon as possible with very minimal leakages,” she added.