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NEWS UPDATES Asean Affairs        25  April 2011

Reducing VAT on petroleum costs Philippines

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The Philippine government may lose a quarter of its revenues from oil if the proposed reduction of the value-added tax (VAT) is instituted Finance Undersecretary Gil Beltran told reporters that the government may incur a revenue lesion of about P13 billion.

”[The lower rate of VAT on petroleum products] would reduce our assumption on VAT collection on oil by one fourth,” Beltran said.

Malacañang is reviewing a proposal to cut the VAT on petroleum products to 6 percent from the present 12 percent to offset the impact of soaring oil prices on consumers.

The government has projected P52 billion from the collection of VAT on oil for the year. This assumed that crude oil was pegged at $80 a barrel.

A $1-increase in the price of Dubai crude would translate to P1 billion more in revenues on the part of the government. Last year, actual collections from VAT on oil products amounted to P45 billion.

Beltran said the reduction of the VAT oil products would benefit mainly those from the high-income bracket.

“This is so because 90 percent of oil consumption comes from the middle-income and super rich citizens,” he said.

The Department of Finance (DOF) also said that removing VAT on oil would not necessarily lower the prices of consumer goods as it would either delay the point of collection from the level of oil manufacturers or dealers to the level of distributors where consumption tax is computed on the price.

“The increase in oil prices has translated into more revenues on the part of the government. But with the possible cut on the VAT rate, then it would likewise affect the government revenues,” Beltran said.

Data from the DOF showed the government enjoyed a P500 million windfall in January and another P700 million a month later because of the soaring prices of petroleum goods.

Over the two-month period, crude oil averaged $89.5 a barrel. Since the start of the year, oil firms have raised fuel prices by at least 10 times, wiping out the effect of the occasional rollbacks implemented in-between.

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