Fuel excise tax: inflation impact higher than DOF’s projection – experts

June 2, 2017 - 1:14 AM
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InterAksyon file photo of vehicles at rush hour in Metro Manila.

MANILA – The House of Representatives has approved tax reforms the government claims are critical for its infrastructure effort, but some critics are looking to the Senate to reject planned tax hikes or at least tweak provisions to limit the impact on the public.

One example of a measure in the reform package that some experts say the government had underestimated the impact of: the higher excise taxes on fuel.

Economists from the University of Asia and the Pacific said that while they weren’t against the tax reform bill, the likely impact on inflation could be higher than that forecast by the government. They aired their views at a Senate ways and means committee hearing on higher excise taxes on fuel.

UA&P economist Ronilo Balbieran, said that “contrary to the results of the DOF [that it’s] within inflation target, we fear that it is being too close to the inflation ceiling of the 4% target inflation for 2018.”

He thinks the inflation target “will be breached if we’re going to push for the 3-2-1,” referring to the House-approved imposition of higher excise taxes on fuel that will be spread out over three years, supposedly to blunt the impact.

Balbieran thinks the inflation target will be breached “mainly because [there will be an] inflation expectation [when you shock the public in the] first year of implementation.”

Among others, the bill calls for a 6-peso fuel excise tax that will split into a 3-peso adjustment for the first year, P2 on the second and 1 peso on the third, from 2017 to 2019.

The UA&P economists recommended that this be changed to P1.75 on the first year and P2 each for the next two years.

Transport groups also appealed to the senators for an exemption, claiming that privately owned cars far outnumber public utility vehicles.

Zenaida Maranan told senators their sector should be exempted from the higher excise taxes “because there are only 470,000 PUVs – the trucks, AUVs, taxis and jeepneys – as against 10 million private cars.”

If exemptions can’t be accommodated, transport groups asked the Finance department for help in modernizing their fleets.

Efren de Luna of ACTO proposed the conversion of a portion of the excise tax, say 50 centavos a liter, into a loan that they can use to modernize.

Department of Social Welfare and Development officials also spoke up against the bill, breaking with other government agencies that have expressed support for tax hikes.

Undersecretary Emmanuel Leyco said the poor would be particularly affected and planned subsidies to mitigate the impact would cost the government.

“We think that we can go and make corruption as an equally important goal of this government. With our experience, the Napoles scam alone is estimated to cost us more than P10 billion and tax evasion, tax leakages cost us billions,” said Leyco.

President Rodrigo Duterte certified the tax reform bill as urgent and the House of Representatives complied by approving the measure just before Congress adjourned this week.

Senators on Wednesday indicated that the government should expect major revisions in the House-approved package when their chamber finalizes their version.