THE GOVERNMENT should look at providing targeted subsidies to micro, small and medium enterprises (MSMEs) and the middle class, an analyst said, adding that more oil reserves are needed in case the Middle East crisis is prolonged.
Asian Consulting Group Founding Chairman and Chief Tax Advisor Raymond A. Abrea said the move to suspend the excise tax on fuel should be a last resort in addressing rising pump prices.
“The suspension of excise, especially when value-added tax (VAT) is included, is not the most effective and immediate solution to reduce the effect of rising prices,” he said at the Pandesal Forum in Quezon City on Monday.
“What we support is a better, transparent, digitalized release of targeted subsidies because if excise is suspended and VAT is included, the rich and big companies will benefit more,” he added.
He said about 50-70% of diesel consumption is accounted for by the top 10-20% income earners or households.
The measure disproportionately benefits the rich, “as instead of the government collecting money from them, since they can afford it, they (will be effectively exempt in the event of a) suspension.”
“We are really advocating for more targeted and more transparent subsidies, even including MSMEs and our middle class, or tax relief,” he added. “But the suspension (of excise tax) should be the last resort and should be limited.”
He said during crises, the government only provides subsidies and tax relief to the most vulnerable segments of society.
“What we forget is that those who are working and are paying their taxes are not receiving any tax relief or assistance because (the belief is) they can afford it because they have salaries,” he said.
“We should have assistance or tax relief for the MSMEs who are really struggling to make ends meet and for the employees who do not receive assistance,” he added.
The ACG is pushing for a law setting mandatory subsidies and tax relief for MSMEs and the middle class during crises.
He said that if rising prices persist, the government can suspend the excise tax on fuel but not VAT.
“But it should be for a limited time. It cannot be prolonged because more than P100 billion (in collections) will be lost.”
“If you also suspend the VAT, the revenue loss will exceed P200 billion. And where will the government get that?” he added.
He said prolonged suspensions of both taxes will push the government to borrow again.
“There should be clear economic indicators so that there is no need for emergency power because it is a waste of time. Dapat kilos kaagad (Immediate action is needed),” he added.
Asked how long the government should implement the suspension, he said: “I am with the Department of Finance in saying we really need to weigh in and consider all factors if this escalates… our response should be based on the situation,” he said.
“I think it’s reckless to just suspend it for a month or three months when we don’t know how long the crisis will last,” he added.
ACG estimates that targeted subsidies for vulnerable segments of society, like commuters, public utility vehicles operators, and the agriculture industry — will cost the government P3.5-5 billion.
Mr. Abrea added that the government should prioritize investing in oil reserves.
“At this point, we need to be more rational and strategic. What the government should do first is to want to secure supply,” he said.
“If (the war) escalates, supply will be the problem. Hopefully, intervention of our international partners (to ensure) safe passage through the Strait of Hormuz would secure the supply,” he added.
He said that the price control measures will be for naught in the absence of supply. — Justine Irish D. Tabile
