APRIL 26, 2006 (STAR) By Aurea Calica And Paolo Romero - Malacañang clarified yesterday the proposal to suspend the imposition of the 12-percent value-added tax (VAT) on local petroleum products would be "the very last option," given its repercussions to the economy and the country’s credibility before the international community.

Press Secretary Ignacio Bunye said the economic managers of President Arroyo balked at the proposal even as the Cabinet continues to explore "all feasible options that could provide the public with relief from rising oil prices."

"While the temporary removal of the VAT might be an option, definitely this is something that will be last to be considered because we would prefer to ensure that our long term gains as far as our credibility in the international market and then the (fiscal) gains that we have attained because of the imposition of VAT be maintained," Bunye said.

He stressed "alleviating the burden of high oil prices on the public must not be at the expense of sound economic fundamentals that drive confidence, investments and jobs."

Bunye admitted Budget Secretary Rolando Andaya led the economic managers in opposing the proposal.

Andaya had pointed out the government should focus more on the long-term gains rather on short remedial measure.

Andaya said 70 percent or P52.5 billion of the P75.9-billion VAT collection annually would be used for deficit reduction that would help the government achieve fiscal recovery.

He said a low deficit would elicit positive market sentiment, which in turn, would attract investments and lower interest rates.

The 30 percent or P22.7 billion, on the other hand, would be used for social development projects, mostly on infrastructure.

The Cabinet would be meeting today to finally decide whether to push or reject the proposal, along with plans to finalize new measures to protect the country from the oil price crisis.

Bunye said Malacañang is making efforts to consult with stakeholders for a "win-win solution."

"We’d rather stick to (the) less drastic response," Bunye said.

He said the impact of energy conservation measures should not be underestimated, citing a report from the Department of Energy showing the actual consumption of petroleum products is on the decline due to the increasing use and popularity of alternative fuels.

Bunye said the government could not risk the hard-won international confidence the country gained after imposing the unpopular taxes to avert a fiscal crisis by sending mixed signals as well as creating uncertainty as to whether the fiscal targets for the year could be met.

Suspending the imposition of the VAT would send a signal to the international financial community that the Arroyo administration does not have the resolve to address the budget deficit, he said.

Bunye said the government is not only on track to wipe out the deficit, through taxes and other measures, in two years.

He said the country has shown to the international financial community that it is prepared to take stringent measures in order "to cure our long standing problems."

Bunye also ruled out government subsidies on imported fuel similar to the oil price stabilization fund in the 1980s.

Other more acceptable measures Malacañang is considering include the reduction of the current three percent tariff on imported oil to zero and the expansion of the subsidies of gas stations for diesel-powered public utility vehicles (PUVs).

Bunye said asking oil companies to increase the number of stations offering subsidies for PUVs is "the first preference" of the economic managers as it is relatively easy to implement and its impact would be immediately felt by the people.

A big letdown

Andaya explained the possible shelving of VAT on oil would leave a big void in the national income.

The void must be filled by new borrowings that would be more expensive in the "face of our fiscal retreat," the former lawmaker said.

"The greater damage of VAT suspension will cause is that it will derail the government’s timetable to balance the budget by 2008 by riding on the crest of robust tax collection," Andaya said.

"VAT on oil is what fuels the government’s speedy crossing toward fiscal recovery," he said.

Andaya said there would be much trade off if the VAT on fuel would be suspended, even temporarily.

He said the government would have to give up major projects if the VAT revenues on oil would be lost.

"Five centavos for every peso of tax collected this year will come from gas pumps," he said.

"Total government take from the VAT crude oil and petroleum products is projected to reach P47.8 billion this year."

According to Andaya, it is very easy to collect the revenues from VAT on oil, with the government relying heavily on it to bankroll the delivery of basic social services.

Andaya spelled out the menu on the national budget that the VAT on oil can finance.

"Receipts from VAT on oil can irrigate 478,000 hectares of land, build 119,000 classrooms, and construct 23,900 kilometers of farm roads," he said. "It can also sustain operations of the Department of Health for almost five years."

Andaya said VAT-funded projects include "all new education initiatives such as the teachers training (P500 million), mass feeding program (P1.6 billion), library hubs (P120 million), computers for high schools (P150 million)."

In the event Congress and the executive branch agrees to suspend the collection of VAT on petroleum products for the duration of high oil prices, "then the (Budget Department) will pick programs whose cancellation will cause the least injury to public interest," Andaya said.

Chief News Editor: Sol Jose Vanzi

All rights reserved