(STAR) By Iris C. Gonzales - The government stands to lose P24 billion yearly if it replaces the value-added tax (VAT) on oil with a specific tax, estimates by the Department of Finance (DOF) showed.

Finance Undersecretary Gil Beltran said the DOF still prefers to retain the VAT on oil instead of replacing this with a specific tax as proposed by Antique Rep. Exequiel Javier, chairman of the House ways and means committee.

“What is acceptable is if the specific tax would be indexed to inflation,” Beltran told reporters during the weekend. He said that if it is not indexed to inflation, the proposed specific tax on oil will not raise as much revenues as the VAT on oil.

The government estimates to raise roughly P80 billion in revenues from the VAT on oil.

Javier’s proposal, embodied in House Bill 4268, does not have provisions that tie the specific tax to inflation.

According to Javier’s proposal, the specific tax on oil will be based on volume of oil. As such, the tax will be fixed despite increases and decreases in the price level of oil.

Under the proposed measure, the price of oil by which the tax will be based will be fixed at $103.50 per barrel.

With this cap, the amount of VAT on oil is converted to specific tax. This means that any increase in the price of oil beyond $103 per barrel will no longer be taxed.

“Moreover, the specific tax rates will be structured to serve the socialized taxation of petroleum products in such as a manner that gasoline which is consumed by motorists carries the heavier burden of the tax while diesel which is used for transport, kerosene which is used in the rural areas and liquefied petroleum gas which is used for cooking, bears the lighter burden of the tax,” Javier said in his proposal.

However, Beltran said the VAT on oil is still “superior” to the proposed specific tax on oil.

“The VAT on oil is still preferable because it is based on consumption,” he said.

Opposition Senator Francis “Chiz” Escudero, on the other hand, prefers to work on the removal of the VAT on oil instead of agreeing to replace this with a specific tax.

Escudero has said that a specific tax on oil could be detrimental to consumers because it proposes a fixed rate which means that even if oil prices go down, the tax will still be at the same rate.

The lawmaker said the more appropriate response is to curb smuggling which accounts for revenue losses of roughly P100 billion annually, Escudero said. He said that if the problem of smuggling is addressed, it could generate even more than the expected revenues from the VAT on oil.

Congressmen to push specific oil tax despite DOF objection By Jess Diaz Tuesday, August 12, 2008

Congressmen will push for converting the 12-percent value added tax (VAT) on oil into a specific or fixed tax despite opposition from the Department of Finance, which claims the plan could result in an annual revenue loss of P24 billion.

Manila Rep. Amado Bagatsing, one of those proposing the shift to specific tax, said yesterday he does not see how the government could lose money.

He said the proposed fixed tax would approximate the amount of VAT levied on crude oil based on a world market price of $103.50 per barrel.

He said at this crude price level, the government is already making a windfall gain since it estimated crude to be around $70 per barrel in making revenue projections that were used in crafting the P1.23-trillion 2008 budget.

“So if crude costs $103.50 per barrel, they are already collecting extra. But crude is now selling at $118-$120 per barrel. At its peak, which is $145 per barrel, it was more than double the level the government projected its oil VAT income, and therefore, collections should have also doubled. So I cannot see how DOF will lose money,” he stressed.

Bagatsing had proposed that the crude price benchmark be pegged at the DOF estimate of $70 per barrel, plus 10 percent for inflation, but Antique Rep. Exequiel Javier, House ways and means committee chairman, raised it to $103.50 per barrel to ensure that the government does not lose money but would in fact realize a substantial revenue increase.

He explained that the beauty of the specific tax is that if crude costs more than $103.50 per barrel, the tax would still be fixed unlike VAT, which increases as the price of crude goes up.

“The specific tax will ease the hardship of our people when the price of crude is high,” he said.

DOF Undersecretary Gil Beltran has told reporters that they still prefer VAT and that some P24 billion would be lost if lawmakers shifted to specific tax.

Some lawmakers have suggested that Congress reduce the 12-percent VAT.

Chief News Editor: Sol Jose Vanzi

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