APRIL 27, 2006
 (STAR) By Aurea Calica And Paolo Romero - Amid warnings from economic managers, President Arroyo yesterday ruled out the suspension of the 12 percent value-added tax on petroleum products, saying that waiving the tax would have negative repercussions on the economy.

The President will instead issue an executive order imposing flexible tariffs on crude oil to help reduce local pump prices.

Finance Secretary Margarito Teves and Energy Secretary Raphael Lotilla said Mrs. Arroyo has adopted the proposal of her economic managers to peg the tariff rate to the price level of crude oil in the world market.

The move, Teves said, will have a big impact on the administration’s efforts to shield local fuel prices from soaring world oil prices and at the same time ensure that government revenues would not be affected by the possible tariff adjustments.

The President is expected to issue the EO before Congress resumes session on May 15.

According to Teves, the Palace is going to come up with a "sliding scale formula" as to when tariff will be increased or decreased.

"As prices of crude oil increase, we can reduce the tariff duty. By the same token, if the prices of crude oil go down, the executive department can make adjustments correspondingly," Teves told a press conference at Malacañang.

He didn’t say though at what crude oil price level the tariff adjustments would begin to take effect. But he said that since the tariff, currently pegged at three percent, is imposed as a percentage, the government’s revenue projection would not be significantly affected though the government is said to lose P2.5 billion for every one percent reduction in tariff.

This is, however, small compared to the revenue losses the government will suffer if the EVAT on oil is waived.

The government is expecting to raise P30 billion to P35 billion from the value added tax on petroleum this year, which is equivalent to 40 percent of the P75 billion that the government expects to generate from the increase in the VAT rate from 10 to 12 percent.

"Clearly, VAT collection from petroleum products contributes a lot to the government’s revenue generation efforts," Teves said.

For the first four months of the implementation of the EVAT law, Teves said actual collections from VAT on oil reached P11.9 billion.

Customs Commissioner Napoleon Morales also said that roughly 30 percent of the Bureau of Customs’ P197-billion collection target for the year is expected to come from imported oil products.

Teves said the Cabinet did not propose the suspension of EVAT on oil even on a temporary basis because it was a very important component of the government’s overall program that will allow it to "continue spending necessary for our social services and infrastructure."

Teves said revenues from EVAT enable the government to continue decreasing the budget deficit and will hopefully bring it closer to its target of balancing the budget by the end of 2008.

The finance chief emphasized that unless the sky-high prices of oil are long-term and permanent, tax measures should not be the knee-jerk reaction to rising oil prices.

Malacañang also earlier said the suspension of EVAT on oil would be "a very last option" for the government.

"We need a clearer reading of the situation, principally from the Department of Energy, to determine whether or not the situation is temporary," Teves said.

The waiver or even a temporary suspension of the EVAT on oil and oil products would require another act of Congress since the EVAT law could not be amended by an executive measure.

"We have to balance the need to achieve our fiscal goals while being sensitive to the immediate needs of the people," Teves aid.

The increase in VAT last February is still being celebrated by the country’s investors as well as credit ratings agencies who said that the fresh revenue flow would finally reverse the government’s fiscal crisis.

"We have seen the commitment and the favorable results that have happened to the economy in the last few months… with the peso, stock market and overall investor confidence improving," Teves said. "This is a situation that will allow us to precisely help our people by putting those social services and infrastructure without having to borrow as much as we did in previous years."

Lotilla added that international prices of unleaded gasoline increased by 31 percent and diesel by 28 percent since December but the domestic pump price of gasoline has increased only by 6.9 percent and diesel by 11 percent.

"The big difference," he said, "is due among others to the strengthening of the peso."

Relief for workers

In his presentation to the Cabinet, Lotilla said pump prices of gasoline, diesel and kerosene could be reduced by as much as P1 per liter on average if the tariffs are reduced.

He added that various measures were approved by the Cabinet to reduce fuel and energy consumption, including the possible adoption of varied working hours for government and private employees.

He disclosed that Trade Secretary Peter Favila’s proposal to implement a "different set of schedules" for government and private employees "will spread the peak hours of traffic over a longer time and ease up the congestion in the streets, which could lead to more savings in terms of use of fuel."

Under the scheme, private workers could go to work at least an hour or two ahead of government employees and go home earlier as well.

The proposed daylight savings time and the four-day work week will not, however, be implemented this summer as it may affect the workers’ productivity, Lotilla said.

At present, some private companies are already observing flexible working hours but the bulk of employees still go to the office almost at the same time.

Lotilla said Favila is in charge of the talks with the private sector for the scheme on varied working hours.

He added that more oil companies were also asked to grant the P1 discount on diesel for public utility vehicles.

Shell Pilipinas Inc., for its part, would distribute 15,000 vouchers to depressed areas for a P15 cut on liquefied petroleum gas (LPG).

Lotilla said the President also ordered the release of P500 million each to the Philippine National Oil Co. (PNOC) and the National Development Corp. (NDC) to spearhead the planting of jatropha that could be a source of fuel.

Teves called on the Senate yesterday to fast-track the passage of a bill that would increase the take-home pay of minimum wage earners in the public and private sector by exempting them from paying income tax.

He said the House of Representatives already passed the measure and the Senate should be starting its deliberation on the bill soon.

The President called for the exemption of low-wage earners from paying income taxes when Congress and businessmen shot down her proposed legislated wage hike a few months ago.

House Bill No. 5296 seeks to exempt minimum wage earners from paying income tax and at the same time increase personal tax exemptions of other workers as part of reforms on individual taxation. It was passed by the House on second reading before its Lenten recess.

"These mitigating measures (are seen) as solutions to the plight of the people today," he said. — With Des Ferriols, Edu Punay

Chief News Editor: Sol Jose Vanzi

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