Finance Department warns against suspending oil taxes, citing economic risks


SUSPENDING taxes on oil products would do more harm than good as it would hike the national government’s budget deficit and debt-to-GDP ratio while derailing the country’s fiscal recovery, the Finance department said on Tuesday, amid rising calls for such a halt.

“Any of the proposals will adversely affect our economic and fiscal recovery, our international credit ratings, and our overall debt management strategy, while benefiting primarily the rich and without providing lasting inflation relief,” Finance Secretary Benjamin E. Diokno said in a statement on Tuesday as a response to lawmakers’ proposal of suspending both the value-added tax (VAT) and excise taxes on oil products.

The latest push came from Senate Minority Leader Koko Pimentel, who prodded the Marcos government to provide a “lifeboat” to countless Filipinos struggling with skyrocketing fuel prices.

“Every week, our fellow Filipinos face the challenge of ever-increasing fuel prices,” the senator said, stressing that “they need a lifeline now.“

Still, the senator held out hope that “the government understands the gravity of the situation and the urgency of intervention to alleviate their hardship.”

The think tank Infrawatch also sought more decisive government action as people continue to be whipped by the impact of rising fuel costs, negating hopes of easing inflation.

However, Diokno pointed out that the government will lose about P72.6 billion in revenues in the fourth quarter alone if the VAT and excise taxes on petroleum products are lifted. This is broken down to P41.4 billion in excise taxes and P31.2 billion in VAT.

The reduction in government collections would drive the state’s deficit-to-GDP to increase from 6.1 percent to 6.4 percent while public debt-to-GDP ratio would hike to 61.7 percent from 61.4 percent, according to the DOF’s estimates.

The DOF’s calculations also showed that the state’s full-year revenue loss from the suspension of the VAT and excise taxes on oil products could reach P280.5 billion (P168.2 billion in excise taxes and P112.3 billion in VAT) or about 1.1 percent of GDP.

This would translate to a higher budget deficit of 6.2 percent from 5.1 percent and debt-to-GDP ratio to 61.3 percent from 60.2 percent next year, according to the DOF.

DOF maintained that the projected revenues from the oil products are already programmed under the 2023 budget.

Risk of downgrade

“With the deterioration in the fiscal picture, we run the risk of an international credit rating downgrade. This will increase the risk premium for government borrowings, consequently another round of higher debt servicing,” Diokno warned.

“Private sector borrowings will become costlier and have a negative impact on private investment and economic growth,” Diokno added.

Diokno argued that the proposals being floated by lawmakers would only “benefit the top 10 percent of households who consume around 49 percent of total fuel consumption.” Diokno noted that the bottom half of households consume only around 10 percent.

The finance chief said it would be best to just provide targeted subsidies to the poor who are affected by the high fuel prices such as jeepney operators, farmers, and fisher folks.

“Removal of taxes is a popular move for politicians. But legislation takes time. Once the elevated oil prices subside, it may not be easy to restore taxes on oil products. It is politically unpopular,” he said.

“That’s the political economy of tax legislation. This has serious implications on fiscal sustainability,” he added.

Pimentel, however, drew attention to the direct impact on people if the situation is allowed to continue without government intervention: “If the sky-high prices of fuel products are not promptly addressed, the country can expect inflation rates to soar, further impacting the economic well-being of every Filipino.”

Pimentel said he remains open to proposals to suspend the excise tax on imported oil and bio-ethanol as immediate measures to bring down the prices of fuel in the country.

Policy think tank Infrawatch PH called for immediate and decisive action from the government as the nation faces yet another significant oil price hike today.

Starting at midnight, oil companies have again increased gasoline and diesel prices by PHP2.00 and P2.50 per liter, respectively, pushing the cost per liter well beyond the P70.00 mark.

Cumulatively, gasoline prices have increased by P11.85 over the past 10 weeks, while diesel prices have increased by P17.30 over the past 11 weeks.

“Today’s oil price hike is not just a statistic; it’s a severe blow to Filipino households already stretched thin,” said Infrawatch PH Convenor Terry Ridon. “The government must act before the situation spirals out of control.”

Infrawatch PH noted that Speaker Ferdinand Martin Romualdez’s dialogue with oil executives on Monday is unprecedented, as no House Speaker has ever confronted oil price hikes with the same level of urgent intervention.

However, the thinktank said that the current situation calls for more immediate measures.

The former House energy committee member also supported Speaker Romualdez’s suggestion to open the Oil Deregulation Law-Republic 8479-for congressional review.

“This 25-year-old law has long outlived its usefulness. Initially enacted in 1998, the law has led to frequent and unregulated price adjustments, affecting everything from public transportation to the cost of basic commodities. This law has given oil companies free rein over pricing, and the public pays the price,” Ridon explained.