DoF signals opposition to VAT exemptions for fuel products

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Karl Kendrick T. Chua

By Melissa Luz T. Lopez
Senior Reporter

THE Department of Finance (DoF) will oppose a fresh Senate proposal to exempt fuel products from value-added tax (VAT), noting that the focus should be on passing the rest of the tax reform packages before this Congress adjourns for good.

Finance Undersecretary Karl Kendrick T. Chua said Senate Bill 2163 filed by Senator Aquilino L. Pimentel III last week, which seeks to restore VAT exemptions for petroleum products, will run counter to the purpose of reducing the burden on low-income households.

“First of all, VAT is a tax on goods and services. When you buy, you pay the VAT. If we remove that, then typically those who buy — the richer one with cars — are going to get a tax break which we are not very comfortable about,” Mr. Chua told reporters on the sidelines of a business group’s meeting yesterday.

“We’re with him to help the people but we can do it differently. Instead of tax breaks, we give more subsidies to those who are in need and we have national ID to make sure they are given objectively.”

Targeted subsidies via the government’s Pantawid Pasada program for jeepney drivers as well as unconditional cash transfers will be a more effective response without sacrificing state revenue, Mr. Chua added.

On top of the 12% VAT, the government collects an additional P4.50 per liter excise tax on fuel products as part of the Tax Reform for Acceleration and Inclusion (TRAIN) law. The additional tariffs are implemented in tranches, starting with a P2.50/liter increase effective Jan. 1, 2018 and another P2/liter that took effect this year. A final increase of P1.50/liter will be implemented by Jan. 1, 2020.

TRAIN’s first year yielded higher tax collections in 2018 but were below target.

The Bureau of Internal Revenue (BIR) collected P1.961 trillion over the full year, against P1.781 trillion in 2017, though it was 4% short of the P2.044-trillion collection target for 2018.

Income tax and VAT collections fell compared to a year earlier, with the former due to adjustments in personal income tax rates under TRAIN. Mr. Chua also attributed the below-target collections to higher inflation, which likely dampened consumption, as well as an increase of input VAT claims extended to new investors.

However, Mr. Chua said that VAT collections will likely be on the rise as investment projects become operational and start turning out products and services.

“In general, together with BoC (Bureau of Customs) and other agencies and dividends, we are on the dot. That’s enough to fund the programs of the government last year and we are expecting BIR to be on the dot,” Mr. Chua added.

Beyond TRAIN, the Executive is now anticipating the passage of additional tax proposals to contribute to revenue.

“This week and the next, we are focusing on alcohol, tobacco and mining… We hope the Senate will advance deliberations so that we can have all of them approved before the end of the Congress in June,” Mr. Chua told members of the Nordic Chamber of Commerce of the Philippines during their general meeting yesterday.

“We are requesting also the Senate to look into the third and fourth packages, which are the property valuation and financial taxes.”

Apart from TRAIN, no other tax reform measures have been signed into law as of this writing. However, Mr. Chua noted that a separate bill offering a tax amnesty for delinquent taxpayers is now under review by Malacañang before the President’s signing into law.

The Senate Ways and Means committee is looking to approve the bill imposing higher excise taxes on cigarettes next week, as they look to open the measure to plenary debate just before Congress adjourns for the campaign period for the May 13 midterm polls.

The window is narrowing for the rest of the tax packages to see legislative action, as Congress will reopen only on May 20 for three weeks of session before the 17th Congress officially closes. If the bills do not pass, the DoF will have to re-file its proposals with the new Congress in July, which would restart the process at committee-level discussions in both chambers.

“The [packages] 2, 3 and 4 are slightly delayed but we hope the Senate will hear them soon. Our target is this year to get everything done,” Mr. Chua said.

The Duterte administration expects to raise P3.2 trillion in revenue this year while expenditures are pegged at P3.8 trillion to make room for increased infrastructure spending.