“Here are the words of Finance Secretary Dominguez.”
On March 16, Finance Secretary Carlos Dominguez explained why the taxes on fuel—gasoline and other refined petroleum products – will not be suspended. This is despite the recent stratospheric increases in local prices of gasoline and other refined petroleum products.
The call for suspension is because of the sharp rises recently in prices of crude oil—the raw material for gasoline and other refined petroleum products. The price of Brent crude, the benchmark for two-thirds of internationally traded oil, averaged only $62.20 in 2021 and $60.74 in 2020. It rose to $139.13 on March 6, 2022, the highest since 2008. Yesterday, Brent crude was doing at $111, up 83 percent from its 2021 average. This sharp price increase has been reflected in recent fuel price increases.
Dominguez says that if the two taxes on fuel products are suspended, the impact could be P147 billion for 2022 alone.
Here is Sonny Dominguez’s edited televised report to President Duterte on March 16:
There are two taxes that are imposed on fuel: the excise tax, which is based on volume, and the value added tax (VAT), which is based on value.
Prior to TRAIN, we had a tax of P4.35 per liter. This was the same tax from 2005 to 2017. The tax was on gasoline. There was no tax on diesel, no tax on kerosene, and no tax on liquified petroleum gas.
However, in 2017, we recommended, and the Congress agreed, to impose the following taxes: P10 per liter on gasoline; P6 per liter for diesel; P5 per liter on kerosene; and P3 per liter on petroleum — on petroleum gas, LPG, per kilo.
We needed funds for our Build, Build, Build Program and for our 10-Point Economic Program of the government. In 2017, in exchange for an increase in taxes, we also reduced the taxes to 99 percent of all the taxpayers. The result was each taxpayer, 99 percent of them, got an average of one month’s salary for the year as tax reduction.
We did two things: we increased the tax on fuel because we needed it for Build, Build, Build, and we reduced the taxes on the individuals who are earning a salary and we exempted taxes of anybody earning less than P250,000 a year.
We also imposed a tax of VAT, a tax on the value — on anything you buy, including fuel. We estimated that if we suspend the fuel excise taxes under TRAIN, it will reduce the total government revenue by P105.9 billion in 2022; in 2023, that goes up to P114.4 billion; in 2024, P123.6 billion; and so on. For the 10-year average of P160.3 billion a year or a total of P1,763.2 trillion for 10 years. This is equivalent to roughly one half of one percent of our GDP.
We expected to collect a total of P147.1 billion in fuel excise tax and VAT in 2022. So this is the amount that we were expecting to collect in Q1, Q2, Q3, Q4 and the total excise tax is P131.4 billion and the VAT is P15.8 billion, for a total of 147 billion.
Now, if we cut this tax, if we — this tax of 147 billion that we estimate we will collect in 2022, has already been put in the budget and has already been allocated for different expenditures, for our Build, Build, Build, for the salaries of government employees including soldiers, including policemen, including teachers.
That money has already been allocated. If we suspend this, and we don’t collect it, what will happen is our debt-to-GDP ratio will go up by an estimated 7.7 percent to 8.2 percent.
And it will bring up our debt-to-GDP ratio to about 61.4 percent.
If we cut the — if we reduce the taxes — first of all, if we reduce the excise tax, it will reduce the cost of fuel by P10.
Now, if we do reduce the tax, who will benefit? The top 10 percent of income earners in the Philippines consume almost 50 percent of all the fuel; the bottom 50 percent consume 13 percent of the fuel.
Cutting the tax will benefit more the people who have cars and the other richer people. We will not be benefitting so much the bottom 50 percent of our population, that will make it very inequitable.
What we should do instead is to provide targeted relief to the most vulnerable sectors of our society and we will fund that from the higher VAT taxes — which we will collect because the fuel prices are going to be higher.
We have estimated that if the fuel price is $100 per barrel, we will collect additional P20 billion in VAT; if it’s $110 per barrel, which is what it is today, it will be P26 billion; $120 per barrel, an extra P31.8 billion; $125 per barrel, P34.6 billion; and $130 per barrel, P37.5 billion.
This is the extra money that we have not yet allocated.
Our recommendation, Mr. President, is to use this extra tax money to subsidize the poorer sections, the poorer people in our society, okay. We think that we will — the average price might be around $110 per barrel for the year, therefore we will have an additional P26 billion to distribute directly.
What we have done and what you have approved, Mr. President, last week, is that we have doubled the fuel subsidy to public transportation from P2.5 billion to P5 billion, and provided subsidies to farmers and fisherfolks, increasing the budget from P500 million to P1.1 billion to reduce their costs.
The first tranche of this has been paid today (March 16), was —P2.5 billion and P500 million, respectively. Next month, we will release another P5 billion and P600 million for farmers. So this is the first step.
The second step is we propose to provide additional relief through unconditional cash transfer to the poorest 50 percent of our population. We propose that we will give them an additional P200 per month or P2,400 per year for each household.
We have around 12 million households in — who are 50 percent and below and the number of people in those households are around 70 million. So that will cost us P33.1 billion, a little more than what we are going to — what we expect to be collecting from the additional VAT on fuel.
This is our firm recommendation, Mr. President. One, to retain the fuel excise tax imposed under TRAIN Law because we already budgeted it for salaries of school teachers; Build, Build, Build Program and other expenses. And second, we provide targeted subsidies of P200 per month per household — per household for one year to the bottom 50 percent of the Filipino households, this will amount to P33.1 billion in budgetary requirements.
To summarize: Retain the fuel excise taxes imposed under TRAIN Law; provide targeted subsidies to the lowest 50 percent of the households in the Philippines totalling 12 million. This will cost P33.1 [billion] per — for the first year.