DOF nixes fuel excise tax suspension, proposes P200 monthly aid to poor families
MANILA, Philippines — The Department of Finance is not recommending the suspension of excise tax on fuel products despite rising prices, saying the government should instead provide P200 per month per household for one year to poor families.
Finance Secretary Carlos Dominguez III on Wednesday said this is a more equitable response to the spate of oil price increases than suspending excise tax on fuel, which would only benefit “richer people” who have cars.
“Cutting the tax will benefit more the people who have cars and they are the richer people. We will not be benefitting so much the bottom 50% of our population. That will make it very inequitable,” he said in a briefing with President Rodrigo Duterte.
Dominguez said the government should instead provide “targeted relief to the most vulnerable sectors,” the funds for which will be sourced from additional revenue from the value-added tax (VAT) from fuel products.
He said the government is expected to collect an additional P26 billion of VAT on fuel if prices will be at $110 per barrel.
“Our recommendation is to use this extra money to subsidize the poorer sections of our society. We will have an additional P26 billion that we can distribute directly,” he said.
The aid will be through unconditional cash transfers worth P200 per month or P2,400 per year to the bottom 50% of all Filipino households, Dominguez explained.
He said this will cost the government P33.1 billion, which is a “little more” than the expected additional revenue from the VAT on fuel.
“We realize that this is not enough, but this is what we can afford as of this time. To make sure that our finances going forward, especially for the next administration, are still going to be healthy. This, I believe, is what we can afford,” Dominguez said.
“This is sustainable. This is something we can sustain and afford as of this time,” he added.
Dominguez again rejected calls to suspend the excise taxes slapped on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, saying it would cost the government P105.9 billion in foregone revenues this year.
The government had programmed to collect a total of P147.1 billion in taxes from oil products in 2022 – P15.8 billion in VAT at the previous baseline estimate of global oil costing $70 per barrel, plus P131.4 billion in fuel excise tax.
Dominguez warned that reduced revenues would affect public programs and projects – like big-ticket infrastructure projects under the “Build, Build. Build” program, as well as salaries of teachers and uniformed personnel – as tax collections had been programmed to fund these budgetary requirements.
Moreover, Dominguez said removing oil excise taxes would put further pressure on the national government’s already strained fiscal state – the projected foregone revenues would bloat the budget deficit to 8.2 percent of gross domestic product, instead of just 7.7 percent of GDP as programmed in 2022.
The share of debt to GDP would also be a higher 61.4 percent this year instead of 60.9 percent if the government would have to resort to more borrowings to finance the budget deficit, Dominguez added.
The country’s 60.5-percent debt-to-GDP ratio in 2021 already exceeded the 60-percent threshold which debt watchers deemed as a manageable level, in the aftermath of a surge in borrowings to fund the prolonged fight against COVID-19.
“The situation is compounded by the rise of interest rates globally. Higher borrowings now will further increase our interest payments and deficit in the future,” Dominguez warned.
The Philippines’ ballooning debts and budget deficit were among the economic challenges that the next President who will win in the May 9 elections must address, Dominguez had said. He said keeping the excise being levied on oil products while giving away targeted subsidies would “make sure that our finances, going forward, and especially for the next administration, are still going to be healthy.”
Socioeconomic Planning Secretary Karl Kendrick Chua also cautioned against public transport fare and wage hikes to mitigate high fuel prices, saying that doing so would jack up inflation to 5.1 percent this year and spread the impact across the bigger population instead of just the most badly hit sectors already being granted with subsidies.
Chua, who heads the state planning agency National Economic and Development Authority (Neda), said hiking the minimum jeepney fare by P1.25 to P10.25 from P9 at present, as sought by transport groups, would add 0.4 percentage point (ppt) to inflation.
The proposed P39-increase in the daily minimum wage in Metro Manila to P576 from the current P537, meanwhile, would push headline inflation higher by 1 ppt.
If added to the Bangko Sentral ng Pilipinas’ (BSP) pre-Ukraine-Russia war estimated average inflation rate of 3.7 percent for 2022, these proposed wage and fare adjustments would bring the headline figure to 5.1 percent – higher than the BSP’s 2-4 percent target range of manageable price hikes conducive to economic growth. A 5.1-percent inflation rate meant consumers would need to shell out P105 or an additional P5 for goods and services they bought at only P100 last year.
“Ito ay tatama sa lahat ng Pilipino. Makikinabang siguro ‘yung minimum wage earner. Pero ‘yung mga informal workers na hindi kumikita ng minimum wage, ‘yung mga piecemeal po ang bayad o ‘yung mas mababa pa sa minimum wage, sila po ay matatamaan din [ng mataas na inflation],” especially if price increases spiral into other basic commodities,” Chua said.
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