Senate President Pro Tempore Ralph G. Recto on Tuesday November 9 sought the congressional passage of his Senate Bill 2440 seeking to lower the cost of electricity and petroleum products.
The measure, according to Recto, seeks to reduce the excise tax on petroleum products and coal by 50 percent, suspend the imposition of applicable duties on their importation, and exempt the system loss charge in the sale of electricity from the value-added tax (VAT), for a period of three years.
According to the Department of Energy (DOE), world oil prices continue to rise due to its tight supply and improving demand.
Among the reasons cited by the DOE for the increase in oil demand are the improving COVID-19 situation, easing of mobility restrictions, and re-opening of borders by many countries.
The price of Dubai crude has increased week-on-week by almost US$3 per barrel, and the Mean of Platts Singapore (MOPS) for gasoline and diesel have also increased by nearly US$5.25 per barrel and around US$ 3.80 per barrel, respectively.
In the domestic market, oil companies implemented a price increase of PI.80 per liter for gasoline, P1.40-P1.50 per liter for diesel and PI.30 per liter for kerosene effective October 19, 2021.
The year-to-date adjustments now stand at a total net increase of P19.65 per liter for gasoline, P18.00 per liter for diesel and P15.49 per liter for kerosene.
Moreover, the looming energy crisis in China and other countries has triggered the rise in demand for coal, thereby increasing its prices in the world market.
In the Philippines, coal-type power plants account for 57.17 percent of the total gross power generation.
The surge in demand for oil and other energy commodities indicates recovery from the crisis brought about by the COVID-19 pandemic. However, the increase in their prices will have an effect on inflation. Each of these commodities is an important component in the production of basic goods and services.
All factors affecting the global prices of oil and coal may not be controlled by our government, but we are not totally helpless in mitigating their adverse effects on the domestic prices of these commodities.
The applicable taxes and duties on these products may be partially reduced or removed for a certain period of time while our country is charting its path towards economic recovery.
In 2005, Republic Act No. 9337, known as the Reformed ValueAdded Tax (RVAT) Law, was enacted to widen the tax base by removing a number of products and services including petroleum and electricity from the list of VATexempt transactions under the National Internal Revenue Code of 1997, as amended, thereby increasing revenue collections. This is in line with the principle that in order for the VAT system to be effective, it should be broad-based and with limited exemptions.
Undoubtedly, the VAT reform has produced significant and positive effects on our economy. However, as a consequence, such effect is also inflationary.
VAT is an indirect tax that is passed on to the consumers of goods and services. Therefore, its imposition on the sale of certain products particularly petroleum products and electricity has the effect of increasing the prices of basic goods and services.
In 2017, another revenue generating measure but with inflationary impact was enacted. Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
It was intended to finance at least partially the Build, Build, Build Program and other social services of the government.
However, it imposes additional excise tax on petroleum products and coal, and just like the VAT, it has the effect of increasing the prices of goods and services.
Under this law, the excise tax on gasoline was increased from P4.35 to PIO, diesel from zero excise tax to P6 kerosene from zero excise tax to P5 per liter of volume capacity, and coal from PIO to P150.00 per metric ton, effective January 1, 2020.
The imposition of VAT and the increased excise taxes on petroleum products and coal are too much of a burden on the consumers and businesses during this time of the COVID-19 pandemic.
As a mitigating response, it is high time to reduce the excise tax on these products by 50 percent, suspend the applicable duties, and exempt the system loss charge from VAT, thereby effectively lowering the prices of electricity and consequently other basic goods and services.
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