The non-adjustment of fuel excise taxes for the past two decades has cost the government an estimated P145 billion annually in foregone revenues (in 2016 prices) or about 1 percent of the country’s Gross Domestic Product (GDP), an amount that could have otherwise been spent on education, health and other social services that benefit the poor the most.
Finance Undersecretary Karl Kendrick Chua said at Wednesday’s public hearing of the House committee on appropriations that the government has proposed to correct this by adjusting fuel excise tax rates, along with the proposal to significantly lower personal income taxes to offset such impact of the higher taxes on petroleum products.
Chua said that contrary to the erroneous perception being foisted upon the public by certain quarters, higher oil taxes will be absorbed mainly by affluent families, and not by the poor and low-income ones, because the wealthy, or the country’s top 10 percent, consume 51 percent of oil products, while the top 1 percent use up 13 percent, or the same share as those in the bottom 50 percent of the population.
“The extra income from higher fuel taxes, which will be collected mainly from rich consumers, will be used for targeted transfer programs and other social welfare benefits for the poor, including a modernization program for public utility drivers,” Chua said.
He further said that public utility (PU) operators and drivers will benefit from the proposed modernization program as they will get to earn more by shifting to better, environment-friendly engines that utilize less fuel.
Chua said studies by Clean Air Asia and the GIZ show that PU vehicles shifting to the more fuel-efficient Euro4 engines will have 77 percent better fuel economy and raise driver take-home pay by 69 percent and driver-operator pay by 35 percent.
Moreover, cumulative savings from lower fuel use as consumers conserve fuel can reach P935 billion between 2018 and 2027, more than fully offsetting the tax, Chua said, citing data from another Clean Air Asia study.
He said the cheap cost of gasoline and diesel contributes to wasteful use of fuel that aggravates traffic congestion, which costs an estimated P2 billion in business losses daily and a 33 percent drop in productivity in Metro Manila alone as most commuters spend an average of 3 hours on the road instead of doing more productive things.
Curbing this wasteful use of fuel would thus reduce air pollution and other health hazards, especially among PUJ drivers, spawned by the continued use of fossil fuel in the transport system.
Chua said reducing air pollution from vehicle emissions by modernizing public utility vehicles will lead to savings on health care of P16.7 billion and environmental savings of P1.1 billion per year.
“After 15 years of operation, each public utility jeepney, for instance, will save P3 million in fuel, health, and environmental costs. Minibus and bus savings are higher at P8 million and 12.7 million, respectively,” he said, citing the above-mentioned studies.
“The entire program can generate P750 billion in fuel, health, and environmental savings in present value terms,” he added.
Adjusting fuel excise tax rates is among the provisions of House Bill 4774 or the Tax Reform for Acceleration and Inclusion Act filed by Quirino Rep. Dakila Carlo Cua, who chairs the House committee on ways and means.
HB 4774 is the DOF-endorsed version of Package One of the Duterte administration’s Comprehensive Tax Reform Program (CTRP).
A substitute bill that was approved by the Cua-chaired House ways and means panel had consolidated HB 4774 with 52 other similar bills. The substitute bill contained moderate modifications to the original measure.
Cua’s committee approved the substitute bill last week by a 17-4 vote and then referred it to the House committee on appropriations to go over the proposed earmarking of funds under this CTRP measure.
Among the modifications is the non-indexation of the fuel excise tax rates to inflation after the implementation of the three-year staggered rate increase is completed in 2020.
Chua said he hopes the provision indexing fuel excise tax rates to inflation would be retained in the final version of the bill.
He said reforming the fuel excise tax system is “highly progressive” because “we would be removing subsidies on the fuel consumption of the top 10 percent of households with monthly incomes of around P115,000 and above who consume almost 51 percent of fuel in the country.”
Chua also pointed out that the top one percent of households, with a monthly income of around P293,000 each, account for around 13 percent of the fuel consumption in the country.
He said that rather than indirectly subsidizing the rich, the additional revenues to be collected from the fuel excise increase would be better spent on targeted transfer programs for about 10 million poor and vulnerable households that would be affected by the tax hike and earmarked for infrastructure projects to reduce traffic congestion and pollution and raise workers’ productivity.
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