The Department of Finance (DOF) has warned that the proposed suspension of the excise taxes on fuel will be inequitable and lead to significant revenue losses, thus threatening the country’s recovery and growth prospects.
Amid calls for the government to address the recent spiral in fuel prices, Finance Undersecretary Gil S. Beltran said a more equitable way to address the impact of higher fuel prices is to provide targeted support to the vulnerable groups.
In particular, Beltran said the government should provide assistance to the transportation sector, which the Duterte administration “has already committed to do.”
Should excise taxes on fuel are suspended, Beltran, who is also DOF’s chief economist, said “the unrealized public spending and investments from the foregone revenues will be detrimental to our economic recovery and long-term growth.”
The DOF estimated that suspending all fuel excise taxes and value-added tax (VAT) on fuel excise will result in foregone revenues amounting to P147.1 billion or around 0.7 percent of the gross domestic product (GDP) in 2022.
If the tax suspension covers only the fuel excise taxes and the VAT on fuel excise under Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the government is estimated to lose P119.5 billion or around 0.5 percent of GDP in the same year.
While consumption will be slightly higher at an estimated incremental of 0.6 percent to 0.7 percentage point, growth will actually be lower by 0.1 percent to 0.2 percentage point, if the excise tax and VAT on it are suspended.
Beltran also stressed that higher income households are estimated to benefit from the suspension more than lower income households.
“With the suspension of fuel excise taxes, we will lose the improvements we made under TRAIN in making the tax system more equitable, in which those who are more financially capable pay more taxes,” Beltran said.
Higher income households are estimated to benefit 60 percent more than lower income households from the suspension of fuel excise taxes.
With the tax relief that would accompany the suspension of fuel excise taxes, the disposable income of the top 10 percent of households is estimated to increase by around 0.63 percent to 0.82 percent on average in 2022.
Meanwhile, the disposable income of the bottom 50 percent of households is estimated to increase by only around 0.34 percent to 0.45 percent.
Beltran said a more equitable way to address the impact of higher fuel prices is to provide targeted support to the vulnerable groups, particularly the transportation sector.
The government has already committed to release P1 billion for cash grants to around 178,000 public utility vehicle drivers for the remaining months of the year through the Land Transportation Franchising and Regulatory Board (LTFRB).
Once spent, the cash grants are estimated to result in an incremental P2.9 billion pesos-worth of growth in the economy.