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PRESIDENT Arroyo on Tuesday approved the reduction of
oil tariffs, which may lower diesel prices by as much as
P1 per liter, to temper the inflationary impact of high
oil prices on consumers.
The move
was touted as one that would ease public suffering
without hurting the fiscal status of the government, but
leading senators warned the Palace that it would
eventually achieve neither. With the economy being
consumption-driven, a public affected deeply by rising
prices would hold back, hurting the economy and the
revenue-dependent government.
“We will
lower the tariffs on oil and petroleum products. We will
ask the oil companies to use this reduction to reduce
the price of diesel. We will issue the corresponding
executive order tomorrow,” the President said in a news
briefing with economic managers after a joint Cabinet
meeting with the National Economic and Development
Authority and National Antipoverty Commission.
The
directive will reduce oil tariffs from 3 percent to 2
percent once crude-oil prices hit $80.94 per barrel, and
diesel, $110 per barrel; and by another 1 percentage
point when crude-oil prices reach $92.41 per barrel and
diesel at a minimum of $110 per barrel.
Finance
Secretary Margarito Teves said the directive is
“revenue-neutral” and would have no impact on the
government’s bid for a balanced budget this year. The
President said this was a better option than the
proposed suspension of the 12-percent value-added tax
(VAT) on oil.
The
Palace decision, however, was met with dismay by the
proponents of the oil E-VAT suspension, chiefly Sen. Mar
Roxas II.
Roxas,
chairman of the Senate trade and commerce committee,
vowed to push early passage of his proposal when
Congress resumes sessions late this month.
“I will
continue to pursue this advocacy of zero VAT on oil,”
Roxas vowed, adding that he has requested Sen. Francis
Escudero, who chairs the Senate ways and means
committee, to schedule his proposed bill for a public
hearing “where all sectors and views about this issue
will be welcomed.”
Teves
said that as decided by the President, the directive
would affect only diesel prices, which will be reduced
by an estimated 50 centavos per liter for every
percentage-point decrease in oil tariffs.
“If this
is done across-the-board, every percentage-point
reduction is equivalent to 23 to 25 centavos [off pump
prices]. But the President decided to concentrate on
diesel because many use diesel. . .We have to work it
out with the oil companies so that the savings, as
suggested by the President, would be funneled into
diesel prices so that more can benefit,” Teves said.
He said
that if oil tariffs are reduced by two percentage
points, diesel prices would go down by P1 per liter.
Teves
explained that the directive is likely to be implemented
by late January, as it may take at least two weeks to
process and coordinate, and may effect an initial
one-percentage point reduction in oil tariffs.
Considering current oil prices which are at $93.28 per
barrel for crude oil and $115.65 per barrel for diesel,
oil tariffs may be further reduced by one percentage
point, or to 1 percent a week after the initial
reduction, said Teves.
“Within
seven days (of the initial tariff reduction), the
chances are this would go down to one percent. So in
effect, it would be from 3 percent to 1 percent,” Teves
said.
But the
finance chief also said that it is “possible” for tariff
rates to be immediately reduced from 3 percent to 1
percent, depending on oil prices in the days to come.
He said
tariff rates would go back to normal once crude oil
prices dip below $80.94 per barrel.
The
President and Teves took turns explaining how the scheme
would have no impact on revenues, making it more
desirable than the proposed temporary suspension of the
E-VAT on oil which is estimated to cost the government
P52 billion to P54 billion in foregone revenues this
year.
Mrs.
Arroyo said the oil tariff represents a percentage of
the prevailing oil price, so if oil prices are low, the
collections are also low; if oil prices are high, the
collections are high, thus yielding a “windfall” or
unexpected revenues for the government.
“One
percent of a bigger price will be the same as 3 percent
of a lower price. That’s what makes it revenue-
neutral,” she said.
Teves
said, based on the projected $92-a-barrel average price
of crude oil and $110-a-barrel price of diesel this
year, the volume of oil imports, and an assumed foreign
exchange rate of P43 to $1, the estimated windfall from
oil tariffs is P11 billion—which is not part of the
programmed revenues for 2008.
Arroyo
said the windfall will be channeled back to consumers
through the oil-tariff reduction, which spells lower
pump prices for diesel, because if such steps are not
taken, an “inflationary spiral” would take its toll on
the people and the economy.
She said
by implementing reduced oil tariffs rather than the
proposed E-VAT suspension on oil, the government can
afford to increase spending on social services, job
generation, infrastructure development, without being
saddled by a budget deficit which she wants wiped out
this year.
If E-VAT
were suspended, “we’re going to end up with a big budget
deficit, no money for these programs to alleviate the
plight of the poor, no infrastructure to bring in
investments, high interest rates because of the budget
peso, weak peso, which will all make the prices
increase. So it’s going to be counterproductive,” she
said.
In her
opening statement at the briefing, the President bared
six other measures to provide relief for high oil
prices, among them: a government petition for the Energy
Regulatory Commission to extend discounted power rates
to more poor families, an accelerated food production
program, and the deployment of more government stores
selling lower prices goods.
In a
statement, meanwhile, Senator Roxas admitted he was
“absolutely dismayed by the Palace’s decision to reject
outright my proposal to suspend the 12-percent VAT on
oil as a way to help our people cope with rising oil
prices.”
He
strongly disagreed with the Palace economic team’s
position that freezing the E-VAT on oil would result in
a weaker peso, less government services, and a bigger
deficit.
Roxas
warned that “we will only let the people’s suffering
continue if we do not act now to suspend the E-VAT on
oil. Our consumption-dependent economy will stall as our
people’s purchasing power continues to weaken due to
high oil prices.”
He
asserted that ordinary consumers would directly benefit
from the temporary scrapping of the E-VAT on oil, and
government can still collect taxes because people will
use these savings to buy other products and goods that
also carry E-VAT.
“Reduction in oil tariffs as pegged to the price of
crude in the world market is an example of tokenism or
pakitang-tao because it yields only a small
relief to people’s wallets,” he said.
Sen.
Loren Legarda said Arroyo’s order to cut the tariff on
imported oil by 1 percent was “better than nothing,” but
added this was not enough to mitigate the effect of
skyrocketing oil prices.
“This is
insufficient, ineffective and unsatisfactory,” she
said—hardly felt by consumers reeling from rising
transport prices, rising costs of commodities, including
vegetables, rice and other food products.
She
explained that the tariff cut, which involves only a
portion of the total tariff amount, would only directly
benefit importers of fuel oil and their derivatives, but
not the public directly. “On the other hand, suspension
of the 12-percent VAT would immediately and directly
benefit millions of consumers, and not just transport
operators and drivers, but also commuters and purchasers
of staple commodities.” |
