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DOF chief opposes suspension of fuel excise tax

Louise Maureen Simeon - The Philippine Star
DOF chief opposes suspension of fuel excise tax
Diokno, head of the administration’s economic team, was reacting to a proposal from the House of Representatives for a three-month suspension of the excise tax on fuel products meant to temper the surge in fuel pump prices.
Philstar.com / Irra Lising

MANILA, Philippines — Suspending the excise tax on petroleum products is expected to have serious repercussions on state coffers and on the overall economy, Finance Secretary Benjamin Diokno warned yesterday, dismissing the proposal from legislators as “short-sighted and ill-advised.”

Diokno, head of the administration’s economic team, was reacting to a proposal from the House of Representatives for a three-month suspension of the excise tax on fuel products meant to temper the surge in fuel pump prices.

“Removal of taxes is a popular move for politicians but legislation takes time. Once the elevated oil prices subside, it may not be easy to restore taxes on oil products,” Diokno said in a message to reporters.

He said the plan would adversely affect the country’s economic and fiscal recovery, as well as international credit ratings and its overall debt management strategy.

Furthermore, he said only the rich would benefit from it as it would not provide lasting inflation relief.

Should the proposal push through, estimates from the Department of Finance showed that the government is bound to lose some P41.4 billion in excise tax and another P31.2 billion in value added tax for a total of P72.6 billion in revenues for the fourth quarter alone.

Diokno argued that such revenues are already programmed under the 2023 budget to fund priority government projects and programs of the administration, such as social services and infrastructure.

DOF data also showed that unrealized revenues would lead to an increase in the country’s budget deficit, as a percentage of gross domestic product (GDP), to 6.4 percent from the expected 6.1 percent.

Likewise, lost revenues would mean additional borrowings and interest for the country, which could hike debt-to-GDP ratio to 61.7 percent from the target 61.4 percent based on the medium-term fiscal framework.

“With the deterioration in the fiscal picture, we run the risk of an international credit rating downgrade. This will increase the risk premium for government borrowings, consequently another round of higher debt servicing,” Diokno said.

“Private sector borrowings will become costlier and have a negative impact on private investment and economic growth,” he said.

Credit ratings depend on the country’s outstanding debt as a share in the overall economy.

Debt-to-GDP ratio is still at 61 percent as of the second quarter from as low as 39 percent before the outbreak of the COVID pandemic.

This remains above the internationally accepted threshold of 60 percent, which still puts the Philippines at a vulnerable spot in terms of its capacity to pay off its financial obligations.

Better credit rating

The economic team of the Marcos administration has been rooting for a better investor-grade sovereign credit rating through its “Road to A” program.

An A rating would affirm the Philippines’ creditworthiness and would serve as a signal to both domestic and global markets that the country is conducive to long-term investments.

Diokno also maintained that the proposal is “regressive” and “inequitable,” noting that the move would only benefit the top 10 percent of Filipino households which consume nearly half or 48.7 percent of the country’s fuel.

This compares to the bottom 50 percent households that only consume around 10.2 percent.

As a solution, the finance chief said the best approach is targeted and timely subsidy to vulnerable sectors affected by the high fuel prices.

The same solution was implemented at the height of the Ukraine-Russia war last year.

While he recognizes the importance of public sentiment to address the elevated fuel prices, Diokno said it is the government’s responsibility to be cautious in implementing policies that could negatively impact the macro-fiscal stability and sustainability of the country.

“When you formulate policy, you always think of what’s the greatest good for the greatest number,” Diokno said.

“We remain committed to sustaining the country’s strong fiscal standing through prudent fiscal management and well-calibrated solutions,” he said.

Congress’ proposal to suspend excise tax came after lawmakers met with oil industry players to come up with “win-win solutions” in the face of rising pump prices.

Oil firms have been implementing increases in diesel and kerosene prices for 11 consecutive weeks and gasoline for 10 straight weeks.

Domestic oil prices continue to be on an uptrend, mirroring that of the international market amid reduced supply by the largest oil producing economies.

Emergency meeting

Militant group Bagong Alyansang Makabayan (Bayan) said President Marcos should hold an emergency meeting with his Cabinet to address the skyrocketing fuel prices.

“We note that there is no sense of urgency on the part of Malacañang. There is no decisive effort to provide relief for the consumers,” Bayan secretary general Renato Reyes said in a statement.

He said the government’s “pantawid pasada” program is hardly enough to compensate for the hardships drivers and operators face each day.

Reyes also said Marcos should consider suspending the VAT on oil products.

“This is an oppressive form of taxation. Because it is a percentage of the total cost, the VAT collection increases every time the price of oil products increases,” he said.

While the estimated VAT windfall revenue from oil price hikes reached P40 billion in 2022, Reyes said public utility vehicle drivers only received P3 billion in subsidy.

“We get the impression that the regime does not want to suspend the VAT on oil because this is where they source the revenues to sustain questionable spending such as travel, confidential and intelligence funds,” he said.

Meanwhile, Rep. Stella Luz Quimbo, senior vice chair of the House committee on appropriations, said the government needs nearly half of its total proposed P5.7-trillion national budget for 2024 to be sourced from borrowings.

“From borrowings, it would be P2.46 trillion,” Quimbo told Camarines Sur Rep. Gabriel Bordado at the start yesterday of plenary debates on the government’s spending plan next year.

The country’s debt ballooned to P14.2 trillion in July as per records from the Bureau of Treasury.

The Marikina congresswoman said the national government would need to source 43.32 percent of the national budget from borrowings, while the other remaining half, or 57 percent, would be drawn from local revenues.

A congressional think tank has said the Philippines’ debt burden is growing faster than the overall budget increase, and over half of the 2024 budget can no longer be allocated to productive expenses.

While the national government’s expenditure program has been steadily going up, the rate of its increase is much slower than the growth of the debt burden since 2021, the Congressional Policy and Budget Research Department said.

Since 2016, the Philippines has more than doubled its debt as it sought to finance big-ticket infrastructure projects and fund its pandemic response.

Government economists, however, have downplayed concerns over the growth in the country’s debt, saying the issue remains manageable. — Emmanuel Tupas, Delon Porcalla

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