MANILA, October 19, 2005
 (STAR) By Donnabelle L. Gatdula - The Department of Energy (DOE) has proposed the removal of the 70 percent cap and increasing the ceiling on input credit to 100 percent as part of mitigating measures to cushion the impact of the imposition of the expanded value-added tax (EVAT).

"Our measures may involve the removal of the 70-percent cap or increasing it to 100 percent," Energy Secretary Raphael Lotilla said.

The cap has been criticized by some business groups, saying that this provision of the EVAT is discriminatory and therefore fails to consider valid and substantial differences among taxpayers belonging to low-margin industries as against those in high-margin industries.

Lotilla said they are set to implement an outline of other measures for prices on oil and power to be kept at current levels if possible.

Independent Philippine Petroleum Companies Association (IPPCA) president Glen Yu earlier said that prices of gasoline products would easily breach the P40 per liter level should the Supreme Court rule on the constitutionality of the EVAT.

But IPPCA chairman Fernando Martinez has stressed that notwithstanding the Supreme Court decision, no increase in petroleum product prices due to EVAT shall be effected until there is a formal notice from the Bureau of Internal Revenue (BIR) and DOE.

The BIR will issue a revenue regulation on the implementation of the new EVAT law, including a transitory provision in the reckoning of the cap on VAT input credit.

The new law allows President Arroyo to raise the VAT rate from 10 percent to 12 percent while removing exemptions enjoyed by the oil industry and other sectors. The law was supposed to take effect last July 1 but the SC issued a temporary restraining order (TRO) after some industry players and lawmakers filed a motion for reconsideration on the EVAT law. The other day, the SC has upheld the constitutionality of the EVAT and can now be implemented by the DOF. The tax measure will earn P5 billion in additional revenues for the government. For oil and power alone, revenues from EVAT will amount to P22 billion.

On the proposal for the removal of 70-percent input cap, the Department of Finance (DOF) will come up with a bill seeking to amend the law.

The energy department estimates that the imposition of the new EVAT law will increase local pump prices will increase by less than 10 percent. The current price level of gasoline ranges from P34 to P36 per liter.

Lotilla has been saying that the impact of the 10-percent VAT will be softened by several mitigating measures in place, such that consumers will not feel the full impact of the 10-percent VAT on oil and oil products.

"The expected increase in fuel prices with the implementation of VAT is minimal. Simulations made with the Department of Finance and the Bureau of Internal Revenue show that the impact will only be an average of about six percent and not 10 percent," Lotilla said.

Lotilla said the removal of the excise tax on diesel, equivalent to P1.63 per liter, and other socially sensitive products such as kerosene and fuel oil substantially lessened the impact of EVAT.

The reduction in import duty to three percent from five percent, equivalent to 50 centavos per liter for diesel, also eased the impact of EVAT.

For kerosene, which is used for lighting purposes in the countryside and by fisherfolks, the increase as a result of EVAT will only be about P1.73 per liter or 5.9 percent. The impact of EVAT is cushioned as the excise tax of 60 centavos per liter is removed and the reduction in the import duty, equivalent to 50 centavos per liter, is taken out. The new retail price will be around P31 per liter.

In the case of fuel oil, mainly used for power generation, the effect of the EVAT will result only to about P1.20 per liter increase or 6.5 percent following the impact of mitigating measures equivalent to 30 centavos per liter due to excise tax removal and another 29 centavos per liter due to reduction in import duty.

The price of regular unleaded gasoline will also rise by only around 6.8 percent or about P2 per liter, which already factors in the impact of mitigating measures of 45 centavos per liter for excise tax and 40 centavos per liter for import duty.

The highest impact of EVAT will be felt on unleaded gasoline, to increase by an average P2.60 per liter. The increase, however, is still only 8.6 percent instead of 10 percent because of the reduction in import duty, equivalent to 40 centavos per liter.

Lotilla also pointed out that the impact of EVAT on socially-sensitive liquefied petroleum gas (LPG), the cooking gas commonly used by households, is significantly mitigated as it is now levied with zero import duty. At the same time, he said LPG enjoys zero excise tax. Combined, the price of an 11 kilogram LPG will increase by only 7.7 percent or less than P30 per 11 kilogram tank.

Chief News Editor: Sol Jose Vanzi

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