Much noise about black rock

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Marvin A. Tort


There has been much noise in media lately regarding a certain black rock. In particular, there has been an effort to create the perception of big public opposition to the Senate plan to increase the tax on coal used for power generation. The lobbying has come from big business, among others, given what they perceive to be the tax’s negative impact on economic growth.

Last week, the Senate voted to hike the excise tax on coal to as much as P300 per metric ton by 2020 from the present P10 per metric ton. The present rate, if I recall correctly, was set in 1996 or more than 20 years ago. It has not been increased since then. The Senate plan, which did not go through the House, is to raise the tax to P100 in 2018, to P200 in 2019, and to P300 in 2020.

I have been supportive of the coal tax hike, primarily because I believe it was about time that the rate was adjusted. The present rate of P10 per metric ton, in my opinion, was absurdly low. And, I think, there is no real strong opposition to taxing coal, considering that we also currently tax oil and other fuel products like diesel, gasoline, and kerosene.

The concern, however, is whether the new tax rates set by the Senate are reasonable. So, the issue is not so much the tax — which has been there for decades — but whether the Senate-approved increase of P100-P300 is a good alternative to other forms of tax. And, of all the arguments I have read so far against the new coal tax rates, my friend Romy Bernardo clearly makes his case.

In his recent column in this paper, he noted that “the P300 per metric ton tax on coal [by 2020] will add P0.14 [14 centavos] per kWh to our cost of generating electricity.” He also argued that using actual carbon emissions as basis for a so-called “carbon tax” on coal, the Senate should not look at anything higher than P60 metric ton. So, P100-P300 is definitely unacceptable.

I would have preferred that Romy shared with his readers the simulations for a tax of P60, P100, P200, and P300 and how they imply on power-generation cost. But, going by his numbers, I reckon every P20 increase in the coal tax translates to a one centavo rise in power cost. And therefore, his P60 can translate to a per-kWh increase of about three centavos.

I believe coal is now sold at about P5000 per metric ton. It was at around P3700 in May. The present tax of P10 per metric ton appears miniscule given these prices. Assuming an average coal price of P4000, a tax of P10 is negligible. But, a tax of P300 is almost 7.5% of that, while an excise tax of P60 drops that percentage to only 1.5% of coal cost.

Assuming that a metric ton of coal generates about 2700 kWh of electricity, and every P20 in tax increases generation cost by one centavo, then a tax rate of P60 translates to a total increase of P81 for 2700 kWh of electricity (from one metric ton of coal) that can be shared by maybe 13 households all operating below 200 kWh — the lifeline threshold.

This then translates to a shared cost of a little over P6 per household. On the other hand, a P300 tax — five times that of the P60 — can then translate to a P30 increase in electricity prices for each of those 13 households. And there lies the rub, really. For, there is substantial difference in P6 and P30, particularly for the poor and the marginalized.

Pardon the computations, please. I cannot aim to be exact here, but I am simply trying to illustrate how even small changes in tax structure can significantly impact on everyday lives. And this, in my opinion, is where Romy gets it right and where the Senate seems to be falling short. The coal tax hike to P300, while seemingly logical, requires more study and deliberation.

An P6-P30 increase in power cost for households may seem reasonable, particularly to those who can afford to pay, but imagine the implications if we start computing the price hike in relation to the amount of electricity consumed by business and industries — which are most likely to pass on that higher cost to consumers by way of higher retail prices.

I remain supportive of the Senate call for a higher tax on coal. However, P300 appears to be way off mark. Doubling of even tripling the current tax rate may be sufficient for now. Perhaps there may even be justification for a P60 tax. This can already multiply the present coal tax yield of P200 million annually to about P1.2 billion — without over-burdening power consumers.

Of course, by compromising on the coal tax rate, the Senate will be hard-pressed to look for other sources of new revenues. It has practically run out of time as it is scheduled to go on recess by late next week. Frankly, I would rather err on the side of a shortfall now, by going ahead with a lower tax rate, and working double time next year.

The disadvantage, of course, is that 2018 is the year before an election year — and maybe a number of our good senators and congressmen are going to seek reelection in May 2019. If so, then the House and the Senate may be even more tentative next year in legislating new taxes. And without new sources of tax revenues, new infrastructure will have to take a back seat.

Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council.