MANILA, Philippines—President Gloria Macapagal-Arroyo’s economic managers are preparing to meet with Catholic bishops to seek their help in ensuring that the poor benefit from the 12-percent value-added tax (VAT) on oil.

The Catholic Bishops’ Conference of the Philippines (CBCP) on Monday called on Malacañang to review the laws on VAT and oil deregulation, which it said were pushing up prices and adversely affecting the poor.

The government expects to collect P87 billion this year from the VAT on oil and an additional P18 billion as a result of the soaring oil prices.

The President and her economic managers indicated the government was not about to give up the VAT on oil.

But Economic Planning Secretary Augusto Santos said the Cabinet was considering lowering the VAT rate on oil to make it “revenue-neutral.” Lowering the rate, however, needs congressional action.

In the House of Representatives, Speaker Prospero Nograles proposed that the VAT on oil be pegged at P7 a liter.

Before the start of Tuesday’s Cabinet meeting, Ms Arroyo said her administration would continue with its programs to bring relief to the people such as the food-for-school program and subsidies for the poor.

“We can do this all with the help of the expanding government coffers that come from taxes from the rich,” Ms Arroyo said in Filipino, in apparent reference to the VAT on oil.

Unwise

Finance Secretary Margarito Teves said he would like to sit down with members of the CBCP to discuss ways to counter the effects of rising commodity prices and to explain why lifting the VAT was not a prudent thing to do.

Teves said lifting the VAT was unwise because it would lead to substantial losses in tax collection. Removing the VAT on oil alone would result in foregone revenues for the government, money that should be used to fund pro-poor programs, he said.

Middle class and rich

He said removing the VAT would benefit only the middle class and the rich, and not the poor. This is because agricultural food products, which the poor consume heavily, are already VAT-exempt.

Those who pay more VAT, which is a form of consumption tax, are the rich because they consume more goods and services, Teves said.

Finance Undersecretary Gil Beltran said 95 percent of the VAT collected by the national government was paid for by the middle class and rich taxpayers. The poor in fact benefits from the VAT because proceeds of the tax are used to fund additional social services for them, he said.

Stick to religion

Beltran also said bishops did not have the expertise on economic matters, and should therefore stick to giving advice on matters of religion, faith and morals.

“If they want to remove the VAT, it should be clear to them that what they are asking for is to help the rich and not the poor,” he said.

Budget Secretary Rolando Andaya said the economic managers had been asked to be “ready” for a meeting with the bishops.

“We are open to suggestions on how this next round of subsidies will be given and suggestions from the bishops are very much welcome,” Andaya said.

He said he believed the bishops wanted to understand the system in which the oil tax proceeds go to the intended beneficiaries and how the beneficiaries would use them.

“We have to return the VAT to those who need it. We will have more subsidies and we are prepared for it,” Andaya said at a news briefing following the Cabinet meeting.

The budget secretary said the government intended to spend this year P18 billion in additional VAT revenues because of soaring oil prices.

Already, the President had released P4 billion from the initial windfall from the VAT on oil—P2 billion to help small electricity users pay their bills, P1 billion in loans and scholarships for poor students, and another P1 billion to help jeepney operators and drivers convert diesel engines into those that run on LPG and compressed natural gas.

Subsidized rice

At the briefing, Santos said the excess revenues from the VAT on oil were also being used by the National Food Authority to subsidize rice being sold to the poor at P18.25 a kilo.

Santos said the Cabinet was thinking of pushing for reducing the VAT rate on oil “so that government will not generate additional revenue and have the additional revenue channeled to oil consumers.”

Asked how much the VAT rate would be reduced, he said it would depend on the price of oil, which the government had projected at $60 per barrel at the start of the year but had already risen to $140-145 per barrel.

“That’s not suspending. That is lowering it to make it neutral but that requires legislation,” he said.

Brownie points

In the Senate, Sen. Manuel Roxas II said the government would rather continue handing out subsidies to the poor than cut the VAT on oil to earn “brownie points” from the public and lift the President’s rock-bottom ratings.

“Why go on collecting the VAT when you plan on returning it anyway? Everyone knows that when the government spends, there are leakages, there is politicking, favoritism,” Roxas said.

Sen. Francis Escudero said Teves had played deaf to mounting calls for the suspension of the VAT on oil largely because it would affect the collection of the Bureau of Internal Revenue and Bureau of Customs, which stand to receive hefty bonuses should their collections exceed this year’s targets.

Amend Attrition Law

Escudero said that the Attrition Law, which provides penalties and rewards to spur the BIR and BOC to boost collections, should be amended to exclude improvement in revenue collections arising from extraordinary events such as the surge in crude oil prices.

Last week, Sen. Juan Ponce Enrile uncovered a P500-million reward awarded by Customs Commissioner Napoleon Morales to himself and his staff for exceeding the agency’s 2006 collections mainly from the advance payment of 2007 taxes by oil companies. With reports from Gil C. Cabacungan Jr. and Norman Bordadora