VAT on oil must stay

CEBU, Philippines - As customary as it has always been, we, Filipinos, are so enamored with things, people or events with entertainment value than those with economic implications. True enough, we spend more time worshipping the exploits of Cong. Manny Pacquiao in the boxing arena than investing time figuring out measures that might ameliorate the poorest of the poor from abject poverty. Worst, we try to hook ourselves hours upon hours with telenovelas and even spend more days discussing the future episodes with “gossip-mates” than projecting ways and means by which we maybe able to contribute something to the country in terms of economic development.

Honestly, we simply go with the flow. So, while the country is so amused by the entertainment value Chief Justice Corona’s impeachment trial has offered, we set aside momentarily some pressing economic issues that need to be attended to. Frankly, while we are not trying to insinuate that we should condone his malicious acts, if there’s any, our leaders should not just be carried away by the potentials of convicting him before the impeachment court just to witness the prospect of seeing him removed from office. Truth be told, what is more pressing right now is the potentially debilitating oil price hike.

Precariously, for months now, crude oil prices have been hovering around US$100 a barrel (WTI is at US$107.42 and Brent is at US$125.98) and may reach US$200.00 as some economists in the USA have projected. This year’s upward movements in oil prices are not just demand driven. Nor is it just influenced by the usual “production cut” approaches of the member countries of the OPEC to regulate the supply side. It is, so far, brought about by the very positive “idea of freedom” spreading all over North Africa and the Middle East, where the world’s oil producing countries are situated. As we all know, recent developments have been so precarious both politically (in North Africa and the Middle East) and economically (the rest of the world) as future oil supply is uncertain. The truth is, while the very upside “idea of freedom” is certainly epic the downside appears to be potentially catastrophic.

Recent developments may also add to these present woes we are in. For one, the economic indicators in the United States of America (USA) are very encouraging. The USA capped a three-month surge in employment by adding 227,000 jobs in February. This same news, however, while so positive under normal circumstances, may present serious concerns to some countries in the globe. While it is true that exports to the USA may soon pick up, the downside could pose a problem to countries, like the Philippines, that are largely dependent on oil imports. Obviously, as the US economy has started rebounding, some factories have reopened and employment picks up. Thus, Americans have slowly started driving their cars for work. Consequently, their demands for oil are steadily increasing.   

To recall, 2008 saw the rise of oil prices to an all-time high of US$147.00 per barrel in July. That was when the US consumption was at its peak. Undeniably, the world’s biggest consumer is the USA. They consume more than 20 million barrels a day or more than ¼ of the world’s output. Therefore, demand for oil is largely influenced by USA’s industrial and personal consumers’ behavior. Obviously, when the US economy strengthens, they’ll drive oil prices up, regardless of the resolution of the political turmoil now prevailing in the Middle East and North Africa.    

So far, domestically, there have been many thoughts on how to solve the crisis we are all in. For 2008’s oil crisis, the government claimed they’ve provided soft loans to public utility owners for their engines’ conversions from gasoline to LPG. Opposing groups have diverse thoughts as well. Pundits’ ideas, for instance, ran from conservation of what we have to opting for more alternative sources. The entire population’s views are very diverse too. Though not loudly ventilated, the silent majority goes for more offshore drillings while the noisy minority adamantly blocks it. Government leaders can’t seem to agree too. While Vice President Jejomar Binay (a known traditional politician in his usual politicking ways) and some legislators are pushing for the abolition of VAT on oil, President Noynoy Aquino holds on to it.

As basic and serious as oil crisis is, this should be seriously addressed and not be treated with kid gloves. In tackling this concern, let us go through its roots with relevant facts and figures, and not attempt to solve them based purely on sheer guts and wild emotions. First and foremost, we must all understand that prices are skyrocketing as a result of the interaction between supply and demand. It simply means that locally there are shortages in the supply of oil. Therefore, it’s a seller’s market. This is a situation where suppliers can command the price. Consequently, the hapless buyers will suffer in the receiving end.   In this present situation, our country isn’t a seller but a buyer. Thus, we are in the receiving end of the bargain. From these facts, it is palpable that any suggestions that do not lead to increases in oil production or reduce dependence on them are not real solutions but just temporary cushions. Therefore, domestic drilling and alternative energy can be considered permanent solutions while abolition of VAT on oil is largely temporary and may not even be at all felt by the less privileged in our society. 

In trying to come up with our permanent solutions, let us examine the more developed countries way of solving theirs. Take for instance the USA’s approaches. Though, just initiated by the Republican lawmakers, in the latest survey, majority of the Americans are supporting the expansion of the country’s domestic drilling prevalently in Alaska's Arctic National Wildlife Refuge and off the East and West coasts. Experts estimated that these areas could add between 1 and 3 million barrels per day. This is quite significant already considering that the USA produces only 5 million barrels a day from its existing wells. 

Like the USA, we are also blessed with our own untapped oil reserves. In fact, foreign investors are knocking at our doors as far as oil exploration is concern. Moreover, in our earnest desire of augmenting domestic oil production, we must also pursue conservation initiatives. Unlike other countries like the USA that manufacture cars, we can’t really stipulate fuel efficiency standards. For instance, in the USA, car manufacturers are mandated to raise fuel efficiency standard from 25 to 35 miles per gallon by 2020. In us, as importers of used vehicles, we can only hope for the limiting of its importation.

However, though we can’t replicate other progressive countries’ fuel efficiency regulations, we can explore other ways of conserving it. Stipulating speed limits is one of them. Speed limits do not only improve safety it also stretches mileage per liter of gasoline. Or in a more practical way, why not stop one’s engine when in a traffic jam or in a junction where the red light is still on. Sometimes, red lights turn green in a couple minutes. If we switch off our cars’ or jeepneys’ engines while waiting for our turn, then collectively, we could save thousands of liters per day.

Alternative sources, like bio-fuel or geothermal energy, can also be considered. While bio-fuel was arguably pinpointed as one of the culprits of the food shortages, geothermal energy maybe largely considered instead. If power plants can shift to this energy, then more labor generating factories maybe operated without necessarily increasing oil consumption.  

Lastly, though the scrapping of VAT on oil is a popular alternative, this does not necessarily ease the pain we are in right now. The poorest of the poor (the people we are trying to really take care much about) do not travel that much, and if they do, they go by foot. Also, everything they put in their plates for their families’ meals are practically exempt from VAT. What this government should do instead, is use VAT on oil to build more farm-to-market roads to augment food production and cut usurious middlemen from the entire process. That way, farmers earn more and shall be encouraged to produce more, thus, consequently help solve our lingering food shortages. 

Indeed, there are a lot of differing opinions. These are differing opinions that could mean diverse preferences; diverse preferences that demand tough choices; and tough choices that could even lead to personal animosities and wild altercations. In all these exercises, however, we hope that our democratic upbringing prevails and we will wholeheartedly accept the pill that tastes bitter in the short run but heals us in the long run. 

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