Will Devanadera proposal work? Economist-solon Salceda sounds off

Published May 21, 2022, 10:15 AM

by Seth Cabanban

House Ways and Means Committee chairman, Albay 2nd district Rep. Joey Salceda insisted that the proposal to remove value-added tax (VAT) on power generation and excise taxation on fuel source is not possible without legislation.

Albay 2nd district Rep. Joey Salceda (File photo/ MANILA BULLETIN)

This, after the Energy Regulatory Commission (ERC) proposed the suspension of fuel taxation for fuel products and the exemption of VAT in some segments of the power sector on Thursday, May 19.

Read more here: https://mb.com.ph/2022/05/19/erc-seeks-excise-tax-suspension/

“You need a law for what Chairperson [Agnes] Devanadera is saying… Legally, it’s not possible. The TRAIN (Tax Reform for Acceleration and Inclusion) Law expressly repealed the VAT zero-rating on the generation charge,” Salceda said in a press statement on Friday, May 20.

“You can’t just do regulation to counter the law. Just as you need Congress to impose taxes where the law does not impose taxes, you need Congress to exempt a sector from tax when no such exemption presently exists in the law,” the Bicolano continued.

The economist-lawmaker further explained that VAT exemption to the power sector would not make sense, arguing that it would further empower already wealthy consumers and result in further power supply issues.

“Economically, it also doesn’t make sense to make a VAT exemption that applies to everyone, including the rich and the big businesses. The rich and the big businesses tend to consume more than the poor, who are, after all, lifeline users,” Salceda said.

“Our energy supply issues will only get worse if you tell the rich and the big guys, look, we will subsidize your consumption with lower taxes, so feel free to consume more. It sends the wrong signal to the wrong people,” he added.

On the subject of fuel excise taxation, Salceda said that a suspension on such tax should be temporary and partial given that the price shocks were also only temporary.

He also added that the presumptive Marcos administration should maintain the VAT reforms from the Arroyo and Duterte administrations.

“Let’s focus on the poor. Let’s consider increasing the lifeline subsidies by the equivalent amount in VAT, around 10 percent of the bill [or] more. That way, you keep your fiscal costs to those who need it. VAT exemptions are almost always pro-rich,” he concluded.