Press Release
December 23, 2007

VAT on crude, petroleum hit 43% total VAT collection for January-June this year, 69% last year
Zubiri seeks VAT exemption of fuel and electricity

"Every peso raked in by government from Value-Added Tax on fuel and electricity is an additional burden shouldered by the consumer who pays VAT for every liter and every watt," said Senator Juan Miguel Zubiri as he filed Senate Bill 1977 seeking the return of VAT-exemption of fuel and electricity.

Government raised hefty revenues from VAT. In 2006, total VAT collection was P76.9 Billion, of which P49.15 B came from VAT on crude and petroleum products, or 69%. From January to June this year, total VAT collection was P43.7 B, of which P18.6 B came from VAT on crude and petroleum products, or 43%.

Zubiri said "the hardship brought about by VAT is felt by every Filipino. The VAT made crude and petroleum products and electricity highly-taxed commodities and whose high prices effectively cascaded to almost all good and services."

"Government's and people's wish lists are poles apart. Consumers want lower prices of oil and electricity but government wants bigger collection," Zubiri noted.

"We may forego traditional Christmas lighting displays, travel less and trim our gift list. Still, we end up spending more because of VAT, and, not just in Christmas."

"Even if we consume less of fuel and electricity, we could still end up paying higher and higher taxes since VAT is based on the value. In addition to that, because fuel and electricity prices are oil-indexed, less volume of consumption do not always translate to lesser expenses," he stressed.

Consumer prices for the whole of 2006 and from January to October this year shows consumer prices following on the heels of oil prices, according to the National Statistics Office. Prices of food, beverages & tobacco; clothing; housing & repairs services; and fuel, light and water all tracked the price of oil.

"The VAT multiplies the rise in consumer prices especially with peaking prices of oil hitting $100 per barrel in the international market. Besides, we depend on imported oil as our local production is only equivalent to half a day of our requirements."

Zubiri cited a Department of Energy estimate that shows a one peso per unit increase in diesel price increases generation cost of electricity, as follows: Luzon, 0.0002; Visayas, 0.0015; Mindanao, 0.0002;and, the Philippines, 0.0004. Likewise, a P1 per unit increase in bunker price increased generation cost, as follows: Luzon, 0.0002; Visayas, 0.0198; Mindanao, 0.0659; and, the Philippines , 0.0161.

"An increase in electricity rates leads to rising cost of production, rising prices and rising consumer expenditures. The additional 2% VAT imposed in 2006 increased household expenditures by an average of 1.4%; prices of commodities by an average of 1.8% and total cost of production by an average of 1.5%."

"When the VAT was imposed on petroleum and electricity, tax collection became a picnic for the BIR and Customs. They only monitored the few companies that collected VAT from their consumers and transmitted VAT collections to the BIR. More so when the 10 per cent VAT rate was later increased to 12%," Zubiri lamented.

"I urge the Bureau of Internal Revenue and Customs to rise to the challenge of collecting from all sectors, not just to depend on a few like fuel and electricity for their accomplishments."

Zubiri said the mitigating measures in the VAT law "were not effective in shielding consumers from oil price shocks and preserving their savings from their personal efforts to conserve electricity and fuel."

The VAT Law provided so-called mitigating measures by removing the excise tax on diesel, kerosene and fuel oil for power generation, reducing the excise tax for unleaded gasoline, and removing the national franchise tax of distribution utilities. Executive Order No. 440 also reduced the import duty of crude and petroleum products from 5% to 3% and, on LPG to 0%.

"I believe returning fuel and electricity to VAT-exempt status as soon as possible is necessary to ease the people’s burden especially low-income consumers. Government doesn't have to break the backs of ordinary consumers to raise revenues," Zubiri said. 000

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