DOF: Suspension of fuel excise tax detrimental to PH’s economic recovery

·3 min read

THE proposed suspension of the excise taxes on fuel would be inequitable and could lead to significant revenue losses that could threaten the country’s recovery and growth prospects, an official from the Department of Finance (DOF) said.

Amid calls for the government to address the recent spiral in fuel prices, DOF undersecretary and chief economist Gil Beltran said, “The unrealized public spending and investments from the foregone revenues will be detrimental to our economic recovery and long-term growth.”

He said a “more equitable way to address the impact of higher fuel prices is to provide targeted support to the vulnerable groups, particularly the transportation sector, which the government has already committed to do.”

The DOF estimates that suspending all fuel excise taxes and value-added tax (VAT) on fuel excise will result in foregone revenues amounting to P147.1 billion or around 0.7 percent of the gross domestic product (GDP) in 2022.

If the tax suspension covers only the fuel excise taxes and the VAT on fuel excise under the Tax Reform for Acceleration and Inclusion (Train) Law, the government is estimated to lose P119.5 billion or around 0.5 percent of GDP in the same year.

While consumption will be slightly higher at an estimated incremental of 0.6 to 0.7 percentage point, growth will actually be lower by 0.1 to 0.2 percentage point, if the excise tax and VAT on it are suspended.

Beltran also stressed that higher income households are estimated to benefit from the suspension more than lower income households.

“With the suspension of fuel excise taxes, we will lose the improvements we made under Train in making the tax system more equitable, in which those who are more financially capable pay more taxes,” Beltran stressed.

Higher income households are estimated to benefit 60 percent more than lower income households from the suspension of fuel excise taxes.

With the tax relief that would accompany the suspension of fuel excise taxes, the disposable income of the top 10 percent of households is estimated to increase by around 0.63 to 0.82 percent on average in 2022. The disposable income of the bottom 50 percent of households is estimated to increase by only around 0.34 to 0.45 percent.

Support vulnerable groups

Beltran said a more equitable way to address the impact of higher fuel prices is to provide targeted support to the vulnerable groups.

The government has already committed to release P1 billion for cash grants to around 178,000 public utility vehicle drivers for the remaining months of the year through the Land Transportation Franchising and Regulatory Board.

Once spent, the cash grants are estimated to result in an incremental P2.9 billion worth of growth in the economy.

Earlier, Sen. Grace Poe filed Senate Bill 2445 that seeks to suspend the collection of excise taxes on gasoline and diesel if the average price of Dubai crude oil hits US$80 per barrel for three consecutive months.

The suspension of the excise tax will immediately bring down the cost by P10 per liter for gasoline and P6 per liter for diesel.

“The rising cost of fuel is certain to have a spillover effect on the cost of other products, especially food which accounts for a big chunk of a household’s expenses. Such will aggravate poverty and hunger among our people. If government cannot substantially provide for its people, then at the very least, it must do all it can to ease their burden,” Poe stressed.

The Philippine Statistics Authority reported last week that food inflation dropped in October to 5.3 percent but fuel inflation rocketed to 32.9 percent from September’s 21.3 percent and was among the highest reported this year.

Poe’s bill proposes to amend section 148 of the National Internal Revenue Code by allowing the suspension of excise taxes on regular gasoline, unleaded premium gasoline and diesel. (with PR)

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