Gov’t may lower tariff on oil to one percent

In an effort to diminish the effect of rising crude prices in the local market, the government is proposing to lower the tariff on imported petroleum products to one percent from three percent by next month, Malacañang said yesterday.

Press Secretary Ignacio Bunye said the National Economic and Development Authority (NEDA) board would discuss the proposal on May 5 and determine the impact of such move on pump prices and revenues.

"Target executive order to come out before May 14 when Congress resumes," Bunye said.

Trade Secretary Peter Favila said President Arroyo had agreed with the proposal of her economic managers to reduce the tariff on imported oil rather than suspend implementation of the 12 percent expanded value added tax (VAT).

The government earlier announced a sliding scale formula to determine the reduction of tariff depending on the prices of imported crude.

The two percentage point reduction based on current prices of fuel in the world market is expected to reduce local pump prices by 50 centavos per liter, officials stressed.

This would also help consumers cope without the government imposing a drastic measure such as the suspension of VAT on oil.

Finance Undersecretary Gil Beltran said the move to reduce the tariff on oil products will slash pump prices by an average of 50 centavos a liter, citing government estimates.

The EO will be submitted to the President for signing after it is prepared by the Cabinet’s Tariff and Related Matters committee.

Bunye said the EO must come out before Congress resumes because modifying tariff through executive actions is allowed only when Congress is in recess. Otherwise, any adjustment in import duties requires legislation.

Economic officials earlier opposed a suspension of VAT on oil, citing its ill effects in the financial markets and the country’s image before the international community.

The proposal apparently scared many concerned sectors that it adversely affected the value of the peso against the greenback to an eight-week low of 51.90 to the dollar.

Finance officials who have opposed the idea also pointed out a large chunk of the national budget stemmed from the collection of VAT on fuel and electricity.

They said the suspension of the VAT on imported oil would derail the financial and economic reform agenda of the government.

On the other hand, any revenue loss from the tariff rate reduction might be offset by increased duty collection resulting from the rise in world oil prices, officials explained.

Finance Secretary Margarito Teves earlier said revenue collection would decrease by P2.5 billion with every one-percentage-point cut in oil tariff.

Teves however took note that the revenue collection would increase by P1 billion with every $1 increase in the price of Dubai crude oil.

He stressed any revenue losses from the tariff would be more manageable than suspending the VAT on oil.

Labor groups, on the other hand, took a brighter prospect on the issue of higher cost of fuel.

The moderate Trade Union Congress of the Philippines claimed the rising fuel costs could be a blessing in disguise for more than one million government workers in the country.

The TUCP said savings from reduced interest payments for government debts, and higher revenue collections due to the implementation of the VAT on imported petroleum products could be used by the government to fund the P3,000 increase in the monthly wage of public employees.

TUCP secretary general Ernesto Herrera said the government’s 1,175,000 employees could be granted a P3,000 increase in their monthly pay since the government expects a "higher than expected value added tax revenues this year, primarily due to the continuing surge in oil prices."

On top of the VAT windfall on petroleum products, Herrera said it was the Bureau of Treasury which said it expects to save nearly P118 billion in programmed interest payments over the next five years because of the peso’s gains against the dollar.

Herrera claimed the treasury bureau sees a P5.8 billion cut in the interest payments this year, P5.9 billion next year, P28 billion in 2009, reaching P45 billion in 2010.

With these forecasts, Herrera said the government no longer has any excuse to deprive civil servants the P3,000 wage increase they have been demanding.

"Both Malacañang and Congress are duty-bound to grant underpaid government workers more meaningful economic relief, and the proposed amount could substantially cover whatever purchasing power civil servants lost since their salaries were last revised upward in 2001," he said. — With James Mananghaya