Double taxes on oil show govt’s lack of concern for poor – IBON

February 23, 2018

by IBON Foundation

Slapping additional taxes on oil products makes the Tax Reform for Acceleration and Inclusion (TRAIN) law anti-poor, research group IBON said. Contrary to the argument that the new law is ‘fair’, the group said that these oil taxes should be scrapped for the benefit of millions of Filipinos who will otherwise continue to suffer the weight of TRAIN beyond 2018.

The Department of Finance (DOF) argues that fuel excise tax “is wrongly perceived to be anti-poor”, explaining that the top 10% richest households consume 51% of total fuel consumption, while the top 1% richest households consume 13 percent. “Fuel excise is clearly a tax that will affect the rich far more than the poor,” says the DOF, while explaining that not imposing excise levies has cost the government some Php140 billion in potential revenues per year.

However, according to IBON, having to pay double taxes through excise taxes on top of value-added tax (VAT) will inevitably affect the country’s more than 60 million living on very low incomes.

Oil products widely used in households, farms, fishing communities, and transportation such as liquefied petroleum gas (LPG), diesel, and kerosene, are being slapped with excise taxes under TRAIN. LPG excise tax starts at Php1.00 per kilogram (kg) in 2018 and increases to Php2.00/kg in 2019, and Php3.00/kg in 2020. Diesel excise tax starts from Php2.50/liter in 2018 and increases to Php4.50/liter in 2019, and Php6.00/liter in 2020. Kerosene excise tax starts at Php3.00/liter in 2018 and increases to Php4.00/liter in 2019 and Php5.00/liter in 2020. Existing gasoline excise levies meanwhile are set to increase from Php7.00/liter in 2018 to Php9.00/liter in 2019 and Php10.00/liter in 2020.

IBON pointed out that the final increase in prices of petroleum products is even higher because the higher excise taxes are themselves also subject to 12% VAT. Consider, for example, diesel gas, priced at Php36.00 per liter inclusive of VAT. In 2018, diesel gas will increase to Php38.80/liter adding the Php2.50/liter excise tax and the Php0.3 VAT on excise.

“The government is obliging both the rice farmer, who struggles to earn Php5,000 every month, and the Chief Executive Officer (CEO) of San Miguel Corporation, who earns almost Php6 million every month, to pay the same tax per liter of diesel that they consume,” IBON illustrated.

According to IBON, TRAIN aggravates the impact of volatile oil price movement due to deregulation on prices, which low-income households have had to bear. Reports indicate that diesel prices have increased by Php5.90/liter for diesel and Php5.12/liter for gasoline from January 1 to February 6. Price hikes have consequently been observed on rice, meat, fish, and some vegetables and grocery items.

Aside from excise taxes and VAT on oil, government should rethink the imposition of other indirect taxes such as additional taxes on sweetened beverages and VAT on power and shipping, said IBON. These will cause the prices of goods and services to rise and compel the poor majority of Filipinos to pay more no matter how small and insufficient their incomes are. This runs opposite to progressive taxation, which taxes citizens according to their capacity to pay.