Mar is right in moving for oil VAT suspension
MYOPIC VIEW: The Arroyo administration’s main reason for opposing the suspension of the Value Added Tax on oil products is that the government will lose some P30 billion in one year.
That is a myopic view of consumer spending.
Suspending VAT collection on gasoline, diesel and other oil-based fuels will mean direct savings for utility drivers, motorists and households at the rate of more than P4 per liter for diesel and about P65 for every 11-kilo tank of cooking gas.
A jeepney driver who uses 25-30 liters of fuel every day will save P100-P120 a day or P2,200-P2,640 a month. Meanwhile, the government “loses” the VAT on that fuel.
But nobody loses anything. In fact, the government is actually a winner.
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SPENDING POWER: As pointed out by Sen. Mar Roxas, who is pushing for the suspension of VAT on oil products, the P100 or so that the driver saves each “pasada” day is not a real loss to the government.
That money will immediately go back into circulation. The driver and his family — and the millions of others who will benefit from the price cuts — will not hide the savings in a shoebox or open a bank account to start a lifetime pile.
The money is soon spent for other goods and services that, as the law dictates, are subject to 12 percent VAT. There is no escaping the tax. It is as pervasive and as obnoxious as air pollution.
Consider the cascading effects of further stimulating the economy by putting more money in the hands of consumers, instead of in the secret pockets of grafters.
With 25 billion liters of fuel consumed each year, imagine the extra spending power passed on to consumers and the taxes they will pay on other goods and services.
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TARIFF CUT: President Gloria Arroyo has come up with a two-point counter-proposal: (1) Lower the tariff rate on oil imports from three to two percent, and (2) Appeal to the oil companies to please pass on their savings to consumers.
The first part, lowering the tariff, should be easy. But some big frogs in the Senate who always see something wrong with whatever the President does, warn that it is unconstitutional and may even mean her impeachment!
The tariff cut is estimated to result in a price reduction of 25 centavos per liter on all types of oil-based fuels, except diesel whose price will be lowered by 50 centavos per liter.
The second part, begging the oil companies to share their indecent profits with their victims, is a bit delicate. In this “Strong Republic,” ha, ha, ha!, nobody, not even the President, tells the oil oligarchs what to do.
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OLD BASIS: Roxas explained the basis of his proposal to suspend the VAT on oil products at a time when people are caught in the vise of low wages and high prices:
“When the VAT was first imposed, the government was in fiscal crisis annually. The government had a budget deficit in the neighborhood of P200-P260 billion and with no prospect of realistically cutting this down.
“At that time, because the government was in budget and fiscal crisis, the legislature thought it proper to impose new taxes, specifically a VAT on power and oil, theretofore not included in VAT, and increasing the VAT from 10 percent to 12 percent on all products.
“The object upon which the VAT was imposed — oil — was trading internationally at about $30 a barrel, and so therefore, the 12-percent VAT imposition on oil was deemed to be bearable.”
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UNBEARABLE: Roxas continues: “We now fast-forward to January 2008. The government, as per its own account, has surmounted its fiscal crisis.
“We are now benefiting from the so-called virtuous cycle of lower interest payments annually, because the cost of our borrowing both in foreign exchange terms as well as in interest rate terms, are now lower, due precisely to the sacrifice our people made in having paid the VAT three years ago.
“So the government by its own account is now in relative fiscal balance, our prospects for fiscal integrity remain very robust, and we now see that the object upon which this VAT was placed — oil — is now in the $90-100-per-barrel range.
“Clearly, 12 percent of $90-100-per-barrel oil is very very different from 12 percent on $30 oil, such that, I would say, it is now unbearable.”
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DEREGULATE?: Roxas explained his position in the context of moves to amend, if not totally rescind, the Oil Deregulation Law that has been blamed by many for the runaway increases in the prices of oil products.
He said: “The more efficient, more effective and more direct and urgently responsive way (to lower or stabilize prices) would be to simply remove oil from the list of VAT-able products.
“This relief is more than P4 per liter on diesel and about P65 for every 11-kilo tank of LPG. This is direct impact and benefit to the people.
“The government does not lose, because the money saved will be re-spent by the average person on all other expenditures that are VAT-able, and so therefore, government will continue to collect VAT on all his other subsequent expenditures.”