Move To Specific Tax On Oil In Philippines Would Dent Government Revenue

by Mary Swire, Tax-News.com, Hong Kong

11 August 2008

Commenting last week on proposed measures designed to mitigate the impact of soaring oil prices on the population of the Philippines, Finance Undersecretary Gil Beltran argued that if a specific tax is imposed on oil rather than a value added tax, such a levy should be indexed to inflation, in order to minimise the loss of government revenue.

A specific tax would mean that a flat rate per unit would be imposed on petroleum products, rather than one conditional on price.

There have been calls from consumers to remove the 12% VAT altogether on such products, which were rejected late last month by President of the Philippines, Gloria Macapagal-Arroyo, who argued that the revenue generated by the oil VAT was an efficient means of subsidizing those citizens currently living under the poverty line.

Interest is growing in a bill put forward last year by Rep. Exequiel B. Javier, which would change the tax from a value added tax to a specific one once a certain set of circumstances is in place, according to reports in the national media. Such a move would still dent government finances, but not to the same extent as a complete removal of VAT.

However, Mr Beltran argued last week that a failure to index the specific tax to inflation, should it be imposed, would be counter-productive, as it would affect the government's ability to provide support for those most impacted by the higher oil prices.

"If ever we shift to specific tax, it should be revenue neutral. That is the minimum requirement," he stated, according to the ABS-CBN news service, going on to observe that VAT is a "superior" tax because: "It rises with the increasing prices and goes down with decreasing prices. It has that natural feature that restrains demand when prices go up."

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