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In 2004, for every peso earned by the government, 86 centavos go to debt servicing 37 centavos go
to interest payments and 49 centavos to principal payments.
For every peso spent by the government, 11 centavos are spent on infrastructure such as roads, bridges,
schools, buildings and other public needs.
This is part of a bigger effort to address the countrys budget deficit. We need to increase our tax
collection to sustain the governments delivery of basic services. While we can conceptually reduce
government expenditures, we can only reduce it by so much because the public relies on government
for these basic services, which include education and medical services.
If we increase the VAT rate from 10% to 12% in 2006, we can raise as much as P35.12 billion more.
On the other hand, if this measure is coupled with the repeal of the VAT exemptions mentioned above
and other provisions of the VAT bill, we can raise up to P81.41 billion assuming a 70% collection
efficiency.
Raising these additional revenues is expected to translate to the strengthening of the Peso-Dollar
exchange rate and better interest rates arising from improved investor perception of the Philippines.
2/
Pump prices of fuel will increase slightly. But to cushion the impact of imposing VAT on fuel, RA
9337 put in place a reduction of excise tax on kerosene, diesel and bunker fuel oil so that what would
otherwise result in a 10% increase in pump prices of these products would be minimized. Thus, pump
prices of petroleum products will increase between 2.8%-8.4% only, instead of a full 10%. For
example, LPG costing P470.00 per cylinder will increase to P505.97 per cylinder instead of P517.00
per cylinder. Kerosene costing P34.01 per liter will increase to P36.12 per liter instead of P37.41.
Est. Pump
Petroleum Price* as of
Product
11/01/05
(in Peso/Liter)
Unleaded
35.45
Regular
33.97
Diesel
32.35
Kerosene
32.91
Bunker
21.38
LPG
458.00
(per cylinder)
Mitigation
Excise
Tariff**
New
Pump
Price
0.00
(0.45)
(1.63)
(0.60)
(0.30)
0.00
(0.52)
(0.46)
(0.57)
(0.57)
(0.35)
10.03
34.93
33.06
30.15
31.74
20.73
447.97
10%
VAT
Final
Pump
Price
3.49
3.31
3.02
3.17
2.07
44.80
38.42
36.37
33.17
34.91
22.80
492.77
Price
%
Increase
Increase
(in Peso/Liter)
2.37
6.6%
1.80
5.2%
0.22
0.7%
1.40
4.2%
0.82
3.7%
22.77
4.8%
*With ROLLBACK of P0.6/Ltr. On all products except for LPG, with rollback of P1.00/kg or P11.00/cyl.
**Based on October 1-20, 2005 MOPS/CP+. Pump prices may vary based on location, company and
other factors.
VAT is a consumption tax. Those who consume more will be taxed more. In the case of fuel, for example,
the richest 30% of Filipino families consume about 65% of the total fuel used in the country while the
poorest 30% only account for about eight percent of the total consumption. This means that a bigger share
of the tax burden will be borne by those who consume more fuel.
What is the impact of VAT on power rates?
The government is doing everything to mitigate the impact of VAT on power rates. The franchise tax on
power distribution utilities was removed so that the increase in power rates is less than 10%.
3/
Existing Ave.
Estimated Ave.
Distribution
Resd'l. Rate
Resd'l. Rate with VAT
%
Utility
(No VAT) (Peso/kwh
(Peso/kwh)
Increase
Meralco (NCR)
6.6366
7.1547
7.8%
VECO (Cebu)
6.2173
6.5167
4.8%
CEPALCO (Cagayan de Oro)
5.3046
5.5519
4.7%
Davao Light (Davao)
4.8402
4.986
3.0%
If the Department of Energy proposed scheme is approved by ERC, it is estimated that there will be no
power rate increase for Meralco residential customers, for example, who consume not more than 200 kwh
per month (lifeline customers). Power rates for residential customers who consume more than 200 kwh but
not more than 999 kwh per month shall increase by P0.73/kwh. For residential customers who consume
1,000 kwh or more per month and commercial and industrial customers, power rates will increase by
P0.85/kwh.
What is the impact of imposing VAT on petroleum products to VAT exempt agricultural food
products?
It is estimated that VAT exempt agricultural food products such as rice, corn, fish, vegetables, chicken and
pork will increase by not more than 1% due to the imposition of VAT on petroleum products.
Will the prices of goods already subject to VAT increase due to the imposition of VAT on petroleum
products and power?
The imposition of VAT on petroleum products and power will have minimal impact the prices of goods that
are already subject to VAT.
To further minimize the effect of VAT on sardines, milk, noodles, sugar and cooking oil, the VAT system
allows manufacturers of these products to credit against their output VAT a presumptive input VAT
equivalent to 4% of the value of their purchases of primary agricultural products used in the production of
these goods.
How will the incremental VAT collection be used?
RA 9337 addresses the delivery of basic services by earmarking the equivalent of 20% of the incremental
VAT collection for the following purposes: public elementary and secondary education, health insurance
premiums, environmental conservation and agricultural modernization, equivalent to the following:
4/
Sector
*Funds will be available to the LGU after three years in accordance with the Local Government Code
An additional P15 million was earmarked to Public Information and Education program that will explain
clearly to businesses the administrative requirements under the VAT.
Also, starting 2006, 30% of the incremental VAT collection for the year will be used for capital
expenditures. This amount will be increased by 5% yearly until it reaches 50% in 2010.
2006
2007
2008
2009
2010
30%
35%
40%
45%
50%
5/
It is also important that citizens help ensure that the VAT they paid will go to the government. One way of
doing this is by asking for official receipts every time payment is made for VATable goods and services.
Cant we just improve tax collection efficiency instead of imposing new taxes?
The Department of Finance is introducing a more efficient tax collection system. But this is not an easy
task, including the implementation of the solution to the problem. For example, due process requirements
in our Constitution demand a careful investigation, prosecution and removal of corrupt government
officials and employees. Now, we need to immediately address the fiscal problem of the country,
especially the countrys debt. We expect that the RA 9337 will address this most immediate need of the
country.
Who can consumers and taxpayers call for questions about price increases due to VAT or general
queries on RA 9337?
DOE Consumer Welfare and Promotions Office Hotline No. 840-2267. Complaints should be directed to
retail marketing Division, Oil Industry Management Bureau. For LPG, call 840-2130. For Liquid Fuels,
call 840-5669.
DTI To report any abnormal or drastic increase in prices of goods attributed to VAT, call 751-3330.
BIR For queries on VAT and other BIR-related concerns, call 981-8888.
You may also visit www.vatreform.gov.ph for more information on RA 9337.
DA For questions on VAT and agricultural products, call 920-9178, 920-2216, 371-2050.