Government nixes World Bank proposal to raise oil taxes

MANILA, Philippines - The government has thumbed down a recommendation by the World Bank (WB) to raise excise the tax on petroleum products.

Socioeconomic Planning Secretary Ralph Recto said that there are other revenue measures that the government is pushing to boost revenues. “We do not believe that a further tax increase should be a priority in the short term. However, the government holds that it needs to implement the more crucial measures first, namely rationalizing fiscal incentives, tax administration measures and sin taxes to ensure the effectiveness of further tax increases,” Recto said.

He also said that the government had already taken initial steps in 2006 to review the petroleum tax with the passage of the Reformed Value Added Tax (RVAT) Law. The law increased the VAT on petroleum products to 12 percent from 10 percent previously.

The World Bank has said that the government should raise excise taxes on petroleum products to have more funds for its fiscal stimulus program.

The Washington-based institution noted that in the Philippines, petroleum products have low tax rates compared to other countries.

For instance, the World Bank noted that among the petroleum products, gasoline has a specific excise tax rate of P4.35 per liter and this has been fixed since 1996.

It noted that raising excise taxes on petroleum products would produce immediate revenue gains and would help ensure that the fiscal stimulus program of the government remains in control.

However, Recto said higher excise taxes on petroleum products would have a dampening effect on the economy because higher prices would discourage consumer spending.

The NEDA chief said the government’s priority is to push for amendments to the sin tax law which could raise as much as P19 to P20 billion in the first year of implementation, P30 to P40 billion in the second year, P40 to P50 billion in the third year and P60 to P70 billion in the fourth year.

Aside from the sin tax measure, the government is also pushing for the measure that would rationalize fiscal incentives given by state agencies to investors and also the measure seeking to simplify the country’s net income taxation scheme.

The government expects to raise P10 billion a year from the proposed fiscal incentives measure and another P6 billion a year from the measure seeking to simplify the country’s net income taxation scheme.

The World Bank, for its part, said that if the government does not address its declining tax effort this could result in a larger deficit for 2009. The government had already revised its budget deficit ceiling for 2009 to P250 billion from previous programs of P199.2 billion, P177 billion and P40 billion.

The Development Budget Coordination Committee (DBCC), the interagency group that sets the country’s macroeconomic assumptions, made the revisions in the budget deficit program for the year because of the prolonged impact of the global financial turmoil.