DOF warns Marcos admin against suspending fuel excise tax

The Department of Finance (DOF) on Thursday cautioned the incoming administration of President-elect Ferdinand Marcos Jr. against suspending the collection of excise tax on petroleum products as it suggested alternative ways to mitigate the impact of fuel price hikes.

Several lawmakers and transport groups have been calling for the suspension of the excise tax on fuel to ease the impact of skyrocketing petroleum prices brought about by supply disruptions in the global market amid the Russia-Ukraine war.

The DOF, however, claims that suspending taxes on fuel products is "not the most efficient approach to alleviating the conditions of affected sectors.”

Malacañang also maintained that the collection of excise tax on oil cannot be suspended despite rising oil prices, as the tax will fund government programs.

According to the Finance Department, the suspension of the fuel excise tax will reduce government revenues by P105.9 billion, or 0.5% of GDP, in 2022, resulting in a higher deficit and government debt.

“An increase in deficit and debt, in turn, will potentially raise interest rates on government debt, thereby reducing much-needed fiscal space for funding crucial social and economic programs, more so now when the government needs to sustain and even boost the domestic economy’s recovery from the lingering pandemic and Russia-Ukraine conflict,” the DOF said.

The agency earlier said that the government’s running debt stock would have ballooned to P15.4 trillion, or P2.2 trillion more than the projected P13.2 trillion by the end of 2022 had the Duterte administration yielded to legislators’ pressure to pass all pandemic relief measures and suspend the fuel excise tax. 

The current excise tax rates for the major petroleum products are as follows: P10 per liter for gasoline, P6 per liter for diesel, P5 per liter for kerosene, and P3 per liter for LPG.

“The suspension of the imposition of excise taxes on petroleum is also extremely regressive and primarily benefits higher-income households,” the DOF said.

“We will just be subsidizing the top 10% of Filipino households who consume about 50% of total fuel consumption in 2022. This means that the larger financial benefits of the suspension will not go to the poor, but to higher income households,” it said.

The Finance Department noted that “[t]he better and more equitable way to address the impact of the increasing fuel prices is to provide swift and targeted support to the vulnerable sectors.”

The Duterte administration opted to release cash subsidies for the public transport and the agriculture sectors amounting to P5 billion and P1.1 billion, respectively.

Latest data available from the Department of Energy showed that year-to-date adjustments stand at a net increase of P26.55 per liter for gasoline, P36.85 per liter for diesel, and P33.10 per liter for kerosene as of June 7.

Meanwhile, fuel prices in several provinces in the country hit P90 to P100 after oil firms implemented another hike in pump prices this week.

The DOF also thumbed down a proposal by Energy Regulatory Commission (ERC) Chairperson Agnes Devanadera to remove the 12% value-added tax (VAT) on the generation charge to reduce electricity costs for consumers.

“VAT exemption is not the solution. If the intention is to unburden consumers, the next administration needs to review the existing policies on power generation pricing,” said outgoing Finance Secretary Carlos Dominguez III.

“We cannot afford to give another VAT exemption as this leads to distortionary and less equitable tax systems,” he said, adding that “VAT exemption creates discrimination among similar businesses. Thus, it should remain broad-based and allow for few exemptions.”

Dominguez said that there is no double taxation in the electric power industry as the EPIRA, or Electric Power Industry Reform Law, has unbundled the pricing at each stage of electricity production. The VAT is imposed separately on each stage of production. —VBL, GMA News