When VAT on oil is ‘crooked road’

Let us please get real! The repeal of the Oil Deregulation Law will not cure our oil price woes. It will only throw us back to the bad old days when government required documents before approving every price increase proposal. Still, the oil prices increased—the only difference was that it took some time to take effect, simply because the government had first to evaluate the oil companies’ price-hike claims. In other words, it is not as much a regulated or a deregulated oil industry atmosphere as the relative volatility of the global prices of oil that causes our oil price woes today.

Methinks a comparatively more practical recourse would be to repeal the value-added tax law. Indeed, for every centavo increase in the local price of oil, the public unduly suffers, yet the government virtually rejoices because of the extra one-twelfth of a centavo automatically added to its coffers. Alas, there can’t be anything more ironic, or a road of governance more crooked, than that!

One recalls that when the VAT law was introduced, several basic consumer products and services were VAT-exempt, including food, medicine and petroleum. Truth is, government finds in the VAT system the perfect and easy solution to its tax collection inefficiencies. But here’s the rub: Its tax collection deficits continue to grow from year to year, so much so that medicine and petroleum have been delisted from VAT exemption. Worse, the tax rate which began at 10 percent is now 12 percent—in fact, the highest in the region. Alas, when can government learn to moderate its tax greed, which nonetheless has failed to eliminate its yearly tax collection shortfalls?

UP economics professor and former Budget Secretary Benjamin Diokno recommends a lowering of the VAT rate on oil from 12 percent to 10 percent. With due respect, I don’t think that’s enough! It would be probably fine if applied to all products, but definitely not with respect to petroleum products alone, which should rather be totally VAT-exempt. For two commonsensical reasons: First, petroleum products were originally (under the old tax code) exempt from VAT, and precisely because they were then already subject to excise tax. They still are today—a clear case of double taxation. Second, let us eliminate the tax collection bonanza that government automatically gets, while the public suffers, whenever oil prices go up. I must submit this is generally true for all commodities subject to VAT. But then, I seriously doubt that there is any article of commerce in our midst and times whose price behaves as wildly, uncontrollably and frequently as petroleum products do.

A  zero-VAT on oil is, of course, going to be a big drain on the government’s revenues, given the volume of oil business this country has. But sheer business volumes are irrelevant here. Aren’t there, all told, more agricultural, marine, livestock and forest products in the market? And they are all VAT-exempt! Well, there are many ways to skin a cat. It is high time government learned to manage its finances more sensitively and less irresponsibly.

—RUDY L. CORONEL,

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