The Department of Finance (DOF) wants to assure public transport operators and drivers that the government proposal to adjust the diesel excise tax to P6 per liter will have “minimal and manageable” impact on the majority of Filipinos, and will be felt more by rich families that actually account for around 50 percent of the country’s fuel consumption.
DOF Undersecretary Karl Kendrick Chua said that to reduce the effect of this proposed tax rate adjustment on vulnerable sectors, the government plans to implement various initiatives, including targeted cash transfers to offset the would-be slight increase in transport and food prices on the poorest 50 percent of households.
The government will also help the transport sector and commuters by reintroducing the Pantawid Pasada Program, and help public utility jeepneys (PUJs) modernize their engines to be more fuel efficient, he said.
For instance, jeepney drivers plying the Espana Boulevard (Manila) to Project 2-3 (Quezon City) route spend some P700 a day in fuel and earn around P2,000. With the higher diesel excise tax, they will spend an additional P150, Chua noted.
“However, this will have minimal effect on their income and on fares once the targeted transfer, the Pantawid Pasada, and the jeep modernization program are implemented,” he said.
“For example, the jeep modernization program can potentially reduce fuel consumption by P350 pesos (or a 50 percent improvement) while the Pantawid Pasada can keep any fare increase to a minimum. With higher take-home pay due to lower income taxes under the tax reform program and the cash transfer to the poor and vulnerable, the effects of the slight increase in fares can be lessened further,” Chua said.
Chua also corrected misconceptions that higher fuel taxes would drive up food prices.
He pointed out that from January to December 2016, diesel prices increased by P10 per liter, representing a 50 percent increase from around P20 to P30.
“However, food inflation increased by only 3.6 percent and overall consumer prices by just 2.6 percent. This is because the economy is well managed and people are benefiting from growth in the form of higher income and wages. With stronger government effort to improve agriculture productivity and build more infrastructure, inflation can even be managed better,” Chua said.
Chua and other DOF executives had wanted to explain these points to a handful of people protesting the proposed fuel tax hike, but the DOF-planned dialogue never took place as the protesters immediately left on Friday morning–without meeting with them–after staging their brief rally in front of the DOF compound in Manila.
He pointed out that even when diesel prices doubled from around P20 to P40 per liter between 2010 and 2012, the base fare for jeepneys increased only from P7 to P8.50.
The minimal increase, Chua said, is because fuel accounts for only 30 percent of PUJ revenues and the government came up with the Pantawid Pasada program precisely to minimize the impact of high diesel prices on public transport costs.
At the same time, he said, food prices increased by only 5.5 percent, which is minimal compared to the 100 percent increase in fuel prices.
“Also, the economy was growing, resulting in higher incomes for many Filipinos. All these mean that the increase in fuel excise is manageable and minimal,” Chua said.
Given that the top 10 percent of households (comprising the richest 2 million households) account for almost 50 percent of all petroleum consumption, while the top 1 percent (comprising the richest 200,000 households) account for 13 percent of all petroleum consumption, Chua said that raising oil excises means that “we stop subsidizing the consumption of the rich and instead use the additional tax revenues to fund infrastructure and protect the poor.”
“Our proposal to adjust the fuel excise tax to around P6 per liter merely updates the rates to current levels as this represents the cumulative inflation since 1997. Even with the adjustments, the retail prices of gasoline and diesel will still be much lower than the rates during the oil price shocks of 2011 and 2012,” Chua said.
The DOF has proposed to Congress the adjustment of fuel excise taxes as one of the revenue-offsetting measures under the Comprehensive Tax Reform Program (CTRP).
The tax reform plan is meant to help the Duterte administration raise enough funds to finance its ambitious program to fill the infrastructure backlog left behind by previous governments, and which has hurt the country’s regional competitiveness as an investment haven, and has made the majority of Filipinos less productive.
Chua said that with global oil prices down and expected by experts to remain low in the few years ahead, the government is losing an estimated P145 billion in potential annual revenues, or about 1 percent of the country’s Gross Domestic Product (GDP), because gasoline excise taxes have remained the same in the last two decades and diesel products have been tax-free for the past 12 years.
Chua said, “the DOF is now vigorously pursuing tax administration reforms at the Bureaus of Internal Revenue (BIR) and of Customs (BOC) to help raise sufficient funds primarily for the unmatched infrastructure buildup under the Duterte administration.”
“But tax administration reforms are not enough to raise adequate funds to bankroll the Duterte administration’s agenda of high and inclusive growth, given the inherent flaws in the country’s tax system that require urgent correction, such as the non-indexation of tax rates to inflation,” Chua said.
“With higher revenues from the oil excise tax reform, we can fund the massive public infrastructure program that is needed to reduce traffic congestion, improve connectivity, and raise the economic productivity of Filipinos, especially those living in the countryside,” Chua said. “Without the CTRP, all these improvements would never be possible.”
Tax reform is needed so that the government can invest P1 trillion more each year on top of the current P1.3 trillion it invests in the domestic economy.
Of the additional P1 trillion, some P402 billion will be invested in education, P138 billion in health, P147 billion in social protection for the poorest of the poor, P194 billion in urban infrastructure and P188 billion in rural infrastructure.
Earlier, 19 former heads and deputy chiefs of the DOF and the National Economic and Development Authority (NEDA) have given their full support to the CTRP, which, they said, would “correct the structural weaknesses” of the country’s system and serve as a tool to decisively attack poverty and achieve inclusive growth.
Comprising 12 former DOF and NEDA bosses and seven finance undersecretaries, they “fully endorsed” the DOF’s tax reform proposals as they expressed in a manifesto their solidarity with the NEDA goal of transforming the Philippines into a “prosperous, predominantly middle-class society” in one generation or by the year 2040.
“We, the former Secretaries and Undersecretaries of the DOF and the NEDA fully support the DOF’s comprehensive tax reform program as a long-needed corrective to our tax system’s structural weaknesses and as a tool to achieve inclusive growth and transformative poverty reduction in our country,” the erstwhile senior government executives said in their joint statement.
They said that “The DOF’s proposed comprehensive tax reform is progressive, timely, and well-crafted to achieve the vision of a prosperous Philippines free of poverty. For these reasons we strongly support the reform and urge the public to do the same.”
The manifesto was signed by former DOF secretaries Cesar Virata, Jose Isidro Camacho, Jesus Estanislao, Roberto De Ocampo, Jose Pardo, Cesar Purisima, and Juanita Amatong; and former NEDA directors-general Arsenio Balisacan, Emmanuel Esguerra, Cielito Habito, Felipe Medalla, and Romulo Neri.
It was also signed by ex-DOF undersecretaries Romeo Bernardo, Joel Bañares, Cornelio Gison, Lily Gruba, Milwida Guevara, Jose Emmanuel Reverente, and Florencia Tarriela.
“Overall, tax policy reforms are needed to make the tax system fairer, simpler, and more efficient, to put more money in people’s pockets, and encourage investment, job creation, and poverty reduction, while making our country more competitive regionally,” they said in the manifesto.
“The personal income tax reform is long overdue and is a welcomed move,” they said. “This needs to be complemented by revenue enhancing measures to ensure that the poor and vulnerable are provided better education and health services, as well as benefit from better infrastructure.
Hence, they said, “We support the increase in oil and automobile excise taxes as a very progressive means of raising revenues and addressing the negative externalities of pollution and traffic congestion as families optimize the purchase and use of cars.
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