DOF: Gov't loses P145-B annually from 'flawed' fuel taxes | SunStar

DOF: Gov't loses P145-B annually from 'flawed' fuel taxes

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DOF: Gov't loses P145-B annually from 'flawed' fuel taxes

Wednesday, January 11, 2017

THE Philippine government is losing an estimated P145 billion in potential annual revenues or about 1 percent of the country's gross domestic product (GDP) because gasoline excise taxes have remained the same in the last two decades and diesel products have been tax-free for the past 12 years, the Department of Finance (DOF) said.

Finance Undersecretary Karl Kendrick Chua said the government is now proposing to correct these flaws in the country's tax system by adjusting fuel excise taxes and later indexing them to inflation, along with the proposals to lower personal income tax (PIT) rates and provide direct cash transfers to vulnerable sectors to offset the impact of the higher tax rates.

At the same time, Chua said the DOF is now vigorously pursuing tax administration reforms at the Bureaus of Internal Revenue (BIR) and of Customs (BOC) to help raise sufficient funds primarily for the unmatched infrastructure buildup under the Duterte administration.

"But tax administration reforms are not enough to raise adequate funds to bankroll the Duterte administration’s agenda of high and inclusive growth, given the inherent flaws in the country’s tax system that require urgent correction, such as the non-indexation of tax rates to inflation," Chua said.

He noted, for instance, that the current gasoline excise tax rates have not changed for the last 20 years while diesel has been tax exempt for the last 12 years.

"These rates, which have not been corrected to account for inflation, has led to a massive foregone revenue loss of about P145 billion (in 2016 prices), which represents over one percent of the GDP," Chua said.

“Our proposal to adjust the fuel excise tax to around P6 per liter merely updates the rates to current levels as this represents the cumulative inflation since 1997. Even with the adjustments, the retail prices of gasoline and diesel will still be much lower than the rates during the oil price shocks of 2011 and 2012,” Chua said.

“Taxpayers will also get a relief from the impact of the fuel excise adjustments because of the lower PIT rates that the DOF is proposing under its CTRP (Comprehensive Tax Reform Program), which will more than offset the slightly higher transport, food and commuting costs,” he added.

For vulnerable sectors and low-income groups, Chua said the DOF is proposing too under the CTRP a targeted cash transfer program for the poorest 50 percent of households, which includes cash transfer, the reintroduction of the "Pantawid Pasada" program that will provide fuel price discounts to public utility vehicles, and a jeep modernization program to improve the engine efficiency of these vehicles.

“These proposed initiatives will cushion the impact of higher fuel excises on transportation, commuting, and food costs for the poorest 50 percent,” Chua said.

“With higher revenues from the oil excise tax reform, we can fund the massive public infrastructure program that is needed to reduce traffic congestion, improve connectivity, and raise the economic productivity of Filipinos, especially those living in the countryside,” Chua said.

Finance Secretary Carlos Dominguez III stressed that tax reform is essential to funding the Duterte administration’s accelerated spending on infrastructure in order to create more jobs that are needed to help free some six million Filipinos from poverty over the next five years.

Investing heavily in infrastructure is likewise indispensable to the government’s goal of sustaining high growth and making its benefits felt by all Filipinos, he said.

"This means there will be no letup in the Duterte administration's commitment to spending big on urban and rural infrastructure as a growth driver, to guarantee sustained high and inclusive growth," the finance chief said.

Dominguez said tax reform is needed so that the government can invest P1 trillion more each year on top of the current P1.3 trillion it invests in the domestic economy. Of the additional P1 trillion, he said P402 billion will be invested in education, P138 billion in health, P147 billion in social protection for the poorest of the poor, P194 billion in urban infrastructure and P188 billion in rural infrastructure. (SDR/Sunnex)

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