Tax reform in the Philippines: A look at fuel tax and its alternatives

In a nationwide initiative to generate revenues, the Philippine government recently proposed a P6 per liter increase in diesel, gasoline, and cooking oil. The tax reform proposal is intended to help fund the administration’s infrastructure program, as well as to keep the president’s promise to reform the fuel tax system, which is widely considered outdated and uncompetitive.

The plan underwent strong opposition, particularly from transport groups, which argued that a rise in fuel taxation would result in more expensive commuting fares and basic oil necessities. Furthermore, it was argued that such a hike would unfairly affect the lower income classes, who would end up paying just as much as the upper income brackets of the society.

Nonetheless, others believe that a tax reform for fuel is long overdue, as it remains at a low price relative to that in other countries. The need for increased revenues alongside the opposition towards a fuel tax increase has influenced the proposal of the recently withdrawn “vanity tax” bill, as well as the electronic gadgets tax plan as alternatives to raising the fuel tax.


To increase or not?

DLSU School of Economics Professor Luisito Abueg explains that one of the reasons why the Philippine government may be looking for a tax reform for fuel products is that the current rates prescribed by the Bureau of Internal Revenue are outdated. The current rates were established way back in 1997 during the Asian financial crisis.

As a result, taxation has gradually taken more effect on the lower income classes due to the effects of inflation in the last 20 years.

Meanwhile, the World Bank (WB) has communicated its support on the proposed changes. They noticed that the Philippines still has a nine percent excise tax imposed on gasoline products, while different countries are at a relative 25 to 40 percent.

Abueg asserts that the fuel tax has been effective. He argues, “Taxes will increase the cost of fuel, but the idea is, you only accrue taxation from commodities if you’re buying more of it. From our data, it shows that it’s the higher income individuals who buy more of fuel, so they are the ones shouldering the burden of taxation, so I don’t think [the fuel tax] is ineffective.”

On the other hand, Commercial Law Department Professor Atty. Zenaida Manalo suggests improving the tax collection implementation of the government, rather than increasing fuel taxes. “The only thing that must be done is to intensify tax collection—not only insofar as specific taxes are concerned, but in all other taxes that are existing. So why not simply intensify? Because there are so many that are subject to these taxes, but who do not pay it,” she argues.

She further explains that many income earners in the Philippines do not pay taxes, simply by not registering their businesses or because the government does not exert enough effort to track them.

Abueg posits that there is also a political angle to the issue. He suggests that due to our dependency on oil and the lack of substitutes for it, a decision to increase taxes on it has also been an unpopular one, which is why past administrations were unwilling to impose hikes.

Likewise, Atty. Manalo affirms that taxing fuel would have a negative effect on consumers, especially lower income ones, who rely on the resource. She explains that the burden of the tax would be carried by the consumers, not the businesses.




The withdrawn vanity tax and other alternatives

Just recently, AKO Bicol Representative Rodel Batocabe proposed the vanity tax bill to enforce a 30 percent excise tax on cosmetics, which according to him has an estimated worth of P200 billion. He encouraged the Department of Finance (DOF) to reexamine its feasible performance as an alternative to fuel taxes.

Besides the administration’s decreasing tax collections over the years, the economically privileged have enjoyed advantages of low fuel expenses and have maximized their utilization without paying for its fair market value. In the event that they are made to pay the charges conformed to expansion, the increase in government revenue can allow the development of more schools, hospitals, precincts, and the like.

In the long run, the poor will ultimately profit from the amplification of excise taxes. Likewise, Batocabe clarified that fuel is used by Filipinos over every social class, so an expansion in fuel excise tax would greatly influence a large portion of the population. On the other hand, the expanded excise taxes on both public and private vehicles proposed to make private autos more expensive, keeping in mind the end goal to clear up congested roads.

Batocabe also urges the DOF to propose an assessment framework to be imposed on cosmetics and restorative surgeries, among others. However, he requests the DOF to exclude reconstructive surgeries done to address disfigurements and wounds from the bill.

Batocabe’s proposition has since ignited disapproval online, with netizens utilizing the hashtag #DontTaxMyBeauty to oppose the proposed bill.

Likewise, although Batocabe recognizes the revenue that the government is attempting to accumulate, Abueg notes the disadvantages in a unified rate, emphasizing that we must take into consideration “who is buying more and who is buying less.”

However, days later, Batocabe said that he was withdrawing the bill following the assurance of Budget Secretary Benjamin Diokno that there was no need for a vanity tax. With this, the future for tax reform in the Philippines remains to be seen.

By Rebekah Navarro

By Josemaria Rustia

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