DOE seeks recalibration of fuel taxes to bring down cost for consumers

The Department of Energy (DOE) is batting for comprehensive review of the taxes being levied on petroleum products as well as those for electricity generation – with the end goal of scrapping taxes that are being imposed on other taxes.

Energy Secretary Raphael P.M. Lotilla primarily indicated that for fuel imports, there are already excise taxes being paid for the products; then at point of sale, these are charged again with value added tax (VAT), “so that’s a tax on a tax.”

The energy chief noted that the DOE is leaning toward scrapping these ‘taxes on tax’ for fuel products because this is one concrete way to bring down the overall cost for Filipino consumers.

“We continue to discuss with the other departments of government, because when it comes to taxation, that’s DOF (Department of Finance) which leads this discussion so we can’t do it only from our perspective,” he stressed.

Apart from oil products retailed at the pumps, Lotilla stated that there’s also Gordian knot to be untangled in the tax regime of the various line items being passed on in the electric bills of consumers.

He specified that several rate components – primarily subsidies and system loss – are also imposed with VAT even if these do not carry value-adding proposition in extending service to the consumers.

“In the case of taxation, of course it is something that the government as a whole has to agree on, but our position in DOE has always been that – we want to have a comprehensive study of the tax system, because we have made it clear that we have to agree on that ‘tax on a tax,” Lotilla emphasized.

“There’s tax on subsidies; tax on system loss; then excise tax is still subjected to VAT, so that’s a tax on tax,” he stressed.

The DOE secretary further conveyed that system loss, in particular, is being taxed but that is not providing any value-added services to the consumers; then subsidy payments – including the universal charge for missionary electrification or UCME is also charged with 12% VAT.

“We contribute to subsidize the off-grids, but our contribution is being taxed. And then on systems loss, again it is not value adding, therefore, it should not be subject to tax,” the energy chief opined.

And while the DOF has been advocating for a carbon tax, Lotilla qualified that there are already ‘proxy carbon taxes’ being enforced – primarily because fossil fuels are imposed with 12% VAT and excise taxes; while renewable energy sources are extended with VAT zero-rated privilege, as well as perks that will entitle them to duty-free importation of equipment and machineries.

“In a way, we have proxy carbon taxes - the VAT differential for the ones that are produced from fossil fuels, that’s a 12% differential because RE is zero-rated. Then you have the excise tax; and you have the incentives that are given – some people even add the FIT (feed-in-tariff) and so on, which are not of course available to fossil fuels,” the DOE secretary expounded.