Call to ‘scrap fuel tax’ should be ignored
Credit to Author: BEN KRITZ, TMT| Date: Wed, 13 Feb 2019 17:11:35 +0000
ON Monday, even though no one asked him, Sen. Paolo Benigno “Bam” Aquino called on the Duterte administration to “suspend” the excise tax on fuel to give “our people…some respite from their everyday struggle against poverty.”
Whether it comes from the media or from society at large, there is an unhelpful standard in this country that presumes anything said by someone in a position of repute is necessarily a part of the public record. An idle and uninformed opinion from anyone not in a position to substantially act on it should not be newsworthy, whether it comes from a senator or not. Whether the opinion becomes so when it is offered as a pandering campaign platitude is highly debatable as well. Since it has been in this case, for better or worse, it is now open to dissection, which is something its issuer might ultimately regret.
One thing that can be said about Sen. Aquino, although it is not necessarily a credit, is that he has at least been consistent in his resistance to the fuel excise tax. The first package of the Comprehensive Tax Reform Program containing the new fuel excise tax was passed by the Senate in December 2017; Aquino was one of four senators voting against it. Back in May 2018 he introduced a bill seeking to suspend or reduce the then-impending fuel excise tax if inflation exceeded a certain limit; that bill was bypassed with little comment. Calling on Malacañang to take action is about the best he can do at this point, with congress in recess and his own reelection doubtful.
Consistency is generally admirable, but not when it is for the sake of a perspective that is short-sighted and objectively wrong.
The fuel excise tax does have an inflationary effect, but that is about the only thing Sen. Aquino got right. A rough estimate of the inflationary effect for 2018 is that it added between 0.4 and 0.5 to the overall headline inflation rate due to its impact on food, transportation, and electricity prices. The fuel excise tax will continue to have an inflationary effect this year due to the P2 per liter increase in the tax, and will again next year when it is increased by another P1 to P1.50.
Because the fuel tax is a fixed amount, it will have a progressively lower impact on inflation this year and next, and no net impact after 2020. Because of the base established last year, any inflationary effect will only be attributable to the increases in the fuel excise tax – perhaps 0.27 percent this year, and 0.17 percent next year. Yes, suspending or eliminating the fuel excise tax would have the effect of reducing inflation, but only to that modest extent. Since the fuel tax is a fixed levy rather than a percentage, if oil prices increase, the inflationary impact of the tax alone is actually reduced; if fuel prices increase by about 10 percent, the relief from suspending the tax would be so negligible as to be irrelevant.
For the sake of pro-poor virtue signaling, Aquino has proposed a virtual non-solution to the perceived problem of high consumer prices. Tinkering with the fuel excise tax would at best provide minimal, short-term relief. If the excise tax were a percentage of fuel pump prices it will perhaps serve as a viable inflation management tool; in its current form, it cannot. If Aquino were not so cynically focused on attracting the most proletarian votes for the minimal amount of effort he could propose substantial price relief such as reducing punishing consumer electricity and water rates, but that requires more research and collegial work than the typical Philippine legislator is either willing or competent to handle.
That is not to say the current fuel excise tax program could not use some improvement. It is generally a good concept, in the sense that consumption taxes are an economically more realistic idea than income taxes, but the current program lacks any sort of productive intentions and is prone to significant revenue leakage.
The experience of countries that successfully manage fuel excise tax regimes has shown that they are most effective when they are considered primarily conservation rather than revenue measures. An additional tax on fuel inevitably reduces fuel consumption to some degree; the increase in price makes fuel unaffordable for some consumers and unpalatable to others. Fuel consumption, and therefore revenue from an excise tax, will gradually decline over a period of time.
Since virtually every alternative to fossil fuel use is something a little more ecologically sound, the tax revenues over that period of time should be used to maximize the conservation impact. The revenues could be used to help fund the expansion of public transportation systems, for example, or offset tax credits for hybrid or electric vehicles, or help finance the government’s much needed and long overdue effort to replace outdated jeepneys and commercial vehicles.
Those kinds of proposals, coming from a senator hoping to keep his job, would be newsworthy. Since, however, politicians are rarely held to a higher standard than can be met with off-the-cuff remarks, we should probably not expect to hear anything of the sort from Sen. Aquino or any of his colleagues.
ben.kritz@manilatimes.net
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