IBON proposes an improved progressive system of specific taxes on unproductive sectors wherein socially sensitive oil products diesel, LPG, and kerosene are exempted while personal, corporate income and wealth-related taxes are higher.

If the Aquino government is seriously looking for measures that would cushion the impact of high oil prices on consumers and the local economy, it should immediately reverse the imposition of the 12% value-added tax (VAT) on petroleum products, said research group IBON Foundation.

Instead of the regressive VAT, IBON proposes an improved progressive system of specific taxes on unproductive sectors wherein socially sensitive oil products diesel, LPG, and kerosene are exempted while personal, corporate income and wealth-related taxes are higher.

Government benefits extremely from oil price increases through the VAT on oil products. A Department of Finance (DOF) official recently gave an estimate of Php4 billion in VAT windfall that government expects to receive by end-March. However IBON argues that without the VAT, oil pump prices may go down by as much as Php 5 per liter and will provide relief to a large number of consumers.

The savings from oil prices mean more money for consumers to spend directly on their needs. Local establishments, particularly those whose operations are fuel-intensive, would also benefit from lower operating or production costs. IBON added that, contrary to government claims, bulk of total revenues from the VAT (58%) does not go towards much needed social services but to debt servicing. Moreover, government can make up for revenue loss even if it scraps the VAT on oil through alternative revenue measures that are less burdensome to consumers.

Government began imposing the 12% VAT on petroleum products in 2006, which compounded the problem of soaring oil prices under a deregulated downstream oil industry. There have been nine rounds of increases in diesel prices and eight rounds of gasoline price hikes since January 2011. These increased the pump price of diesel to Php6 Php8.35 per liter and regular gasoline by Php6.25 in the first quarter.

Lastly, the research group stressed that the deregulation of the oil industry has burdened the people with more exorbitant petroleum prices while oil firms are not required to justify their price increases. As global prices of oil continue to rise, IBON renews its call to scrap the deregulation law to pave the way for state control of prices. (end)