Demands grow for VAT removal on fuel

Oil price moves closer to $150 per barrel

07/13/2008

Demands for the government to reduce if not totally remove the 12 percent value added tax (VAT) on oil and refined products such as gasoline grew louder yesterday as crude prices rocketed to records above $147 per barrel in US trade yesterday.

Traders said the new record price on oil was set as a result of the weak US currency, simmering tensions over crude producers Iran and Nigeria and news of a looming strike in Brazil.

Local oil firms raised the prices of diesel, kerosene and liquefied petroleum gas (LPG) by P1.50 per liter yesterday after a P1 per liter surprise cut in the price of gasoline last Wednesday.

Multisectoral group Kontra-KulimVAT said after 18 rounds of oil price increases this year, the VAT on diesel now stands at P6.71 per liter and P88.62 for each standard 11-kilogram tank.

Last January, the VAT on diesel stood at only P4.61 per liter while the tax on LPG was only P72.35 per 11-kilo tank.

“In less than seven months, the national government’s VAT collections from two of the most socially sensitive petroleum products have increased by P2.10 per liter on diesel and P16.27 per tank of LPG,” the group said.

Kontra-KulimVAT added that

in January, the government was collecting around P81.27 million everyday from the VAT on diesel and P18.62 million daily from LPG.

With the latest increases in prices, the government will now collect P118.29 million everyday from the VAT on diesel and P22.77 million on LPG, it added.

“Such huge increases in government revenues also directly translate to more economic hardships for ordinary people,” Arnold Padilla, Kontra-KulimVAT spokesman, said.

He pointed out that jeepney drivers, for instance, shell out P138.80 per daily trip to pay for the VAT on diesel last January. “Today, they will need to spend P201.30, or an additional P63,” Padilla pointed out. There are more than 426,000 jeepney drivers in the country.

Senate Minority Leader Aquilino Pimentel Jr. had said the government has the option to revise the VAT, if not to scrap it altogether as it relates to oil, or at least suspend its effectiveness for the duration of the problem.

“Of course that is only a temporary solution. The ultimate solution is for us to really produce our own sources of energy. In that respect, this will take a longer time. Just the same, we should start now,” he added.

A growing number of senators have joined the demand for Malacañang to review the law imposing the VAT on oil and fuel products, which is the same demand issued by the Catholic Bishops Conference of the Philippines (CBCP) after a recent two-day conference.

Pimentel said the high cost of oil products is triggering the increase in prices of basic commodities and transpot fares.

Pimentel also sided with the observation aired by Senators Francis “Chiz” Escudero and Manuel “Mar” Roxas II on the windfall earnings posted by the government from the VAT imposed on petroleum products, the scrapping of which is being claimed by Malacañang and its allies as something that could hurt the fiscal standing of the government.

New York’s main oil contract, light sweet crude for August, hit a historic peak of $147.27 per barrel before closing at $145.08, a gain for the day of $3.43.

London’s Brent North Sea oil for August delivery jumped as high as $147.50 to beat the previous record of $146.69 set on July 3. The contract settled up $2.46 at $144.49.

With markets already in a frenzy over tensions with Iran and problems in Nigeria, news of a strike in Brazil added to speculative fervor,

Workers for Brazil’s state-run oil giant Petrobras are to start a five-day strike on Monday.

The main union covering Petrobras workers in the key Campos off-shore area in southeastern Brazil confirmed to Agence France Presse Friday that the near-total stoppage would occur.

“There will be minimal production if Petrobras accepts that the production is controlled by the workers but if the company tries to use its own teams, we will disconnect the equipment,” union spokesman Marcos Brida said.

The Campos area accounts for 80 percent of Petrobras’s daily production of 1.8 million barrels of oil.

Oil also swept back into record territory after the European single currency briefly leapt above $1.59. The weak dollar boosts demand for dollar-priced oil which becomes cheaper for buyers using stronger currencies.

“As ever, the market remains very sensitive to any potential supply disruptions and geopolitical tensions,” said Sucden analyst Andrey Kryuchenkov.

Oil rallied by almost $6 on Thursday on the back of simmering geopolitical tensions over key producer Iran and worries over stretched global crude supplies, traders said.

Prices dived below $140 on Monday as a result of a then strengthening US currency, underlining the extreme volatility that the market is currently experiencing.

On Friday, traders continued to track Iran, which is Opec’s second-biggest crude oil producer with output of about four million barrels per day.

The White House played down the risk of war between Iran and the United States, despite Iranian missile tests and some tough talk by US Secretary of State Condoleezza Rice.

Rice warned Iran that Washington had beefed up its security presence in the Gulf and would not hesitate to defend its ally Israel.

Iran insists its nuclear drive is aimed solely at generating energy but some Western nations fear it could be aimed at making an atomic bomb and have called for a freeze of uranium enrichment.

Opec would not be able to replace Iran’s oil production if supplies were halted in case of a war with Israel or the US, the oil cartel’s chief has said.

In producer Nigeria, meanwhile, kidnappers seized at least one foreigner working for a German company in the restive Niger Delta oil region, a police source said on Friday.

Violence in the southern delta region has already reduced Nigeria’s total oil production by a quarter since January 2006.

Some 8.6 million households nationwide, meanwhile, will now spend P66.46 per month to pay for the VAT on LPG, compared to P54.26 last January, based on Kontra-KulimVAT estimates.

“The Arroyo administration can no longer justify the VAT on oil with the unabated fuel prices hikes. Its desperate attempts to counter the snowballing call to cancel this oppressive tax through the gasoline price rollback and subsidies will not appease the restless public.” Padilla said.

Kontra-KulimVAT also said that the VAT on oil was conceived to assuage the fears of foreign creditors of debt default and not to raise money for social services.

“(Mrs.) Arroyo and her economic managers are just forced to give a good reason for the continued imposition of the VAT on oil, that’s why they hype the subsidies’ from VAT. But the more it defends the VAT amid the worsening poverty and escalating prices, the more the government is despised by the people,” he added.

Escudero also noted that the rise in oil taxes has yet to reflect on Bureau of Customs collections, further pointing out that there is a “disconnect” between a supposed windfall in oil VAT collection , on the one hand, and actual Customs collections

Being a percentage tax, the VAT on oil “shadows any movement in the price of oil, he said.

“If oil prices have gone up, so does the VAT, and so must overall Customs collections,” Escudero said, adding that BoC collection in the first five months of the year, is actually below target.

BoC’s five-month collection reached P92.6 billion, below its target of P94.4 billion. On why the agency continues to sputter in its collection despite recent “macroeconomic developments” that tend to favor it is a big puzzle, Escudero, who is also chairman of the committee on ways and means said.

This year’s BoC goal of P254 billion was pegged on $62 to $70-barrel of Dubai oil and an exchange rate of P46 to P48 to a greenback. It was on this assumption that it was assigned a P64 billion collection target on crude oil, coal and petroleum products.

Oil has long breached the $100-dollar mark with no sign of retreating and the peso after flirting with the 41 to a dollar level for the first quarter of year is still trading below the official government forecast.

“I disagree that it was a windfall (earning). Taxes are imposed so it’s not right for them to boast of it as some kind of an accomplishment when in fact it’s not,” said Pimentel.

Also, Pimentel belied the claims of some sectors that the implementation of the Biofuels Act will also further deteriorate the food supply problem in the country.

“This is not true as far as the Philippines is concerned because we are not using corn or some staple products to produce biofuels. Our target in producing ethanol is from sugar. And historically, there is a surplus of sugar production in our country,” he said.

“We’re not sacrificing food security by going into biofuels. This is something that we have yet to prove. And so, instead of government stealing funds intended for the public, we should infuse it to production of alternative sources of fuels,” he said. Angie M. Rosales

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