Government studying measures to lessen VAT impact from power, oil sectors

The government is readying measures to lessen the social impact of the expanded value-added tax (VAT) law when it is implemented starting July.

In a joint press conference, officials of the Department of Finance, Department of Trade and Industry (DTI), Department of Energy (DOE) and Department of Agriculture gave their assurance that the prices of "socially sensitive" products and services will "remain stable in spite of the signing of the VAT reform measure."

DTI Secretary Juan Santos said the law should "have an effect on basic commodities only in 2006" and warned that the government would act against "those who exploit the situation."

Starting July 1, the government will also start imposing a 10-percent VAT on petroleum and electricity, sectors that were previously exempted from the levy.

Energy Secretary Raphael P.M. Lotilla listed some of the steps that his department will take to lessen the effects of the VAT imposition on the prices of petroleum products.

Lotilla said the DOE will promote energy conservation, intensify the monitoring of pump prices in coordination with the DTI and consumer groups, and crack down on smuggling of petroleum products.

The DOE, he said, will also ask the Tariff Related Matters Committee of the National Economic and Development Authority (NEDA) to recommend the issuance of an executive order that would reduce the present five-percent duty on petroleum products to three percent and even zero percent for liquefied petroleum gas (LPG).

Lotilla said among the measures proposed to lessen the impact of VAT on power rates are the removal of the franchise tax, the adoption of progressive billing by the Manila Electric Co. and the expansion of lifeline rate discounts.

Lifeline rate discounts are discounts given to marginalized electricity consumers or those consuming 100 kilowatt-hours (kwh) per month or less.

Lotilla said the restructuring of lifeline rates requires the approval of the Energy Regulatory Commission (ERC). "It is on the table and once the appropriate petition is filed with the ERC, we take it very seriously."

Lotilla dismissed the suggestion that the expanded lifeline rates would amount to an inter-class subsidy.

"That is not the intention. The removal of the cross-subsidy will remain as scheduled, which is in October this year," he said.

He said the provision of "lifeline rates" is a recognized "safety net" for small power consumers.

Lotilla refused to give estimates on how much the VAT would affect petroleum prices and power rates pending the issuance of implementing guidelines.

He said a public hearing would be held on June 1 on the guidelines of the new VAT law.