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Palace to double oil tax
by Judy T. Gulane, Business World, Philippines (7 July 2004)

The Malacañang presidential palace will issue within the next two weeks an executive order that will raise the excise tax rate on petroleum products to six percent from the current three percent level.

Consequently, a cut in fuel prices is now unlikely, said Albay (southern Luzon) Rep. Jose Clemente S. Salceda, a member of the Economic Managers' Group, which acts as a clearinghouse for measures to improve the government's fiscal position.

The executive order will be issued because Congress, where all tax bills should come from, is not in session.

Raising the excise tax, said Mr. Salceda, would raise a minimum of PhP9 billion and a maximum of PhP30 billion for the government.

"It is the Arroyo administration's first downpayment in preempting a fiscal crisis," he told BusinessWorld.

Mr. Salceda also said that the increase in excise tax -- or duty paid on crude and petroleum imports -- would allow the government to take advantage of the fall in global oil prices from $42 to $34 per barrel. "Instead of a price rollback in the prices of petroleum products, government will instead catch the price savings and raise revenues," he said.

Any increase in importation cost because of the tax will be offset by lower global oil prices. A local oil price hike can thus be avoided. But there will be no price cut either.

Mr. Salceda said he was not worried by public protests once oil companies refuse to cut prices. He noted there was virtually no consumer resistance when oil companies raised prices by an average of PhP2 over the last six months.

Mr. Salceda added liquefied petroleum gas or LPG, which is used by mostly poor families, would not be covered by the executive order.

Last Monday, businessman and consumer advocate Raul T. Concepcion said a cut of PhP1.49 per liter in the price of gasoline was imminent for Pilipinas Shell Petroleum Corp. and Petron Corp., given the overrecovery to-date up to June of 69 centavos for gasoline.

Other oil firms expect to cut their gasoline prices by 61 centavos, and diesel by 29 centavos.

Raising the excise tax on petroleum products is one of the revenue-generating measures being discussed within the Economic Managers' Group. Other measures include proposing the indexation of excise taxes on cigarettes and alcoholic drinks, increasing the expanded value added tax to 12% from 10%, and shifting to gross income taxation from net income taxation, extension of the motor vehicle users charge, franchise tax on telecommunication firms, and granting of tax amnesty.

Mr. Salceda said he personally favored imposing excise taxes on sin products, which included petroleum products because of their "sumptuary or consumptive logic."

This refers to the negative effects they have on society -- on people's health or on the quality of air, for example -- which forces the government to spend more to correct them.

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