Government pushes for higher gas and diesel taxes,  safety nets readied

January 11, 2017

With world oil prices low, the government is losing an estimated P145 billion in potential annual revenues, or about one  percent of gross domestic product because gasoline excise taxes have stayed  the same in the last two decades and diesel products have been tax-free for the past 12 years.

In a statement on Wednesday, Finance Undersecretary Karl Kendrick Chua said the government is proposing to correct these flaws by adjusting fuel excise taxes and later indexing them to inflation, along with proposals to lower personal income tax  rates and provide direct cash transfers to vulnerable sectors to offset the impact of the higher tax rates.

"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.

Chua said  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 personal income tax 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 finance department  is proposing 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. DMS