Earlier this week, President Ferdinand Marcos Jr. suspended the excise tax on liquefied petroleum gas (LPG) and kerosene, which is used as cooking fuel for many Filipino households. However, the president left the fuel tax of P5 per liter for diesel and P10 per liter for gasoline, which is necessary for transportation, untouched.
In light of the fuel crunch impacting the country due to the war in the Middle East involving the USA-Israel alliance against Iran, several sectors of society had been pressing the government to cut the excise and value added tax (VAT) on petroleum products to cushion the blow of the rising costs of production and the price of goods and services, arguing that the economic gains from suspending fuel taxes would outweigh revenue losses.
Several lawmakers have sought a broader cut in the VAT to include all goods and services.
The Philippine Chamber of Commerce and Industry (PCCI) and the Philippine Exporters Confederation Inc. (Philexport) said that the high fuel prices were eroding business margins and warned that they threaten the survival of small companies which form the bulk of business enterprises across the country.
PCCI, the country’s largest business group, said high energy costs have become a “primary bottleneck” to growth, particularly for micro, small, and medium enterprises which make up 99.5 percent of Philippine businesses.
Senator Bam Aquino on Thursday filed Senate Bill No. 2047 to reduce VAT from 12 percent to 10 percent, as fuel prices rise and trigger inflation due to the Middle East war. The proposed measure could help cushion the impact of the rising prices of fuel and commodities, which the Department of Energy projects to last for six months to a year.
Finance Secretary Frederick Go has defended the limited suspension of the fuel tax as a “balanced and fiscally responsible approach,” noting that foregone revenues could reach an estimated P136 billion from combined excise and VAT collections.
According to John Paolo Rivera, senior research fellow at the Philippine Institute of Development Studies, fuel tax cuts benefit a wide swathe of consumers rather than target those most affected by the crisis.
There are solid arguments for both sides, but during these trying times, it is the duty of the government to strike the balance between fiscal sustainability and economic resilience, and determine if it can be achieved if the VAT on fuel were suspended.
The Filipino people who are hurting from this crisis are watching closely. This is not a time for dilly dallying or half measures. Our leaders who sold themselves as capable of doing the job, in good times and in bad, have to step up and make the most informed, and hopefully right decision for the country.*
