Removing Oil VAT to Give Relief to Greater Number of Filipinos — Ibon

Removing the 12% value-added tax (VAT) on oil products will give relief to a majority number of Filipinos in the fastest way possible, including reduced prices for petroleum products and liquefied petroleum gas (LPG).

Independent think-tank IBON disputed claims that removing the VAT on oil would hurt the economy, saying that it could even spur economic growth while mitigating the effects on poor Filipinos of skyrocketing world oil prices.

“Removing the 12% VAT on oil is especially urgent because of record joblessness in the country, falling incomes of Filipino families amid ironically diminishing social services, and worsening economic outlook intensified by the global economic slowdown,” said IBON research head Sonny Africa.

Removing the VAT on oil would stimulate economic activity through savings to consumers on their fuel bills. It is estimated that without the 12% VAT, oil pump prices would go down by P4 per liter and LPG by P60 per 11-kg cylinder.

These savings mean more money for consumers to spend directly on their needs, Africa said, adding that bulk of revenues from the RVAT go towards debt servicing anyway instead of the much-needed social services. Local establishments, particularly those whose operations are fuel-intensive, would also benefit from lower operating or production costs, he added.

Africa pointed out that government’s estimate of annual revenue loss of P52 billion from the removal of VAT on fuel could actually be just P46 billion, assuming that consumer savings are spent on VAT-able items. But either way, government can make up for such losses through alternative revenue measures that are less burdensome of Filipinos.

Such measures include addressing graft and corruption in revenue collections, which have cost government P82 billion in uncollected corporate taxes in 2006 and an average of P57 billion annually in uncollected VAT, according to a study by the National Tax Research Center; and addressing smuggling, which cost government anywhere from P64 billion to as much as P174 billion in lost revenues.

“Revenues generated from these measures are more than enough to cover the supposed P52-billion revenue loss from the removal of VAT on oil,” said Africa.

It could also address undue revenue losses from fiscal incentives given by the Philippine Economic Zone Authority and the Board of Investments, which cost government some P152 billion (2003) and P51.8 billion (2004) respectively.

Ultimately, the welfare improvements to the country’s poorest consumers and the public transport sector in terms of reduced prices and additional incomes are more than enough reason for government to absorb the revenue losses from the lifting of the VAT on oil, said Africa.