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E-VAT drives up prices
Higher oil, LPG, electricity, toll rates
First posted 00:53am (Mla time) July 01, 2005
By Abigail Ho, Michelle Remo
Inquirer News Service
Editor's Note: Published on page A1 of the July 1, 2005 issue of the Philippine Daily Inquirer
HIGHER fuel prices, higher power rates, higher toll fees and higher prices of other goods and services will greet Filipinos today with the implementation of the 10-percent expanded value-added tax (e-VAT).
The implementation of the e-VAT and the country's worsening economic situation might finally drive people to the streets to topple the Arroyo administration, an American think tank, which correctly predicted the downfall of President Joseph Estrada, said Monday.
Strategic Forecasting Inc. (Stratfor) said that while the opposition had not been able to gather huge demonstrations against President Gloria Macapagal-Arroyo, that could change with the implementation of the e-VAT.
With the e-VAT, the Department of Energy (DoE) estimates that prices of petroleum products will increase as follows: diesel by 55 centavos a liter, unleaded gasoline by P2.60 a liter, regular gasoline by P2.01 a liter, kerosene by 55 centavos a liter, bunker fuel by P1.22 a liter, and liquefied
petroleum gas (LPG) by P29.87 per 11-kg cylinder.
In May, Manila Electric Co. (Meralco) placed the increase in power rates at 80.56 centavos per kilowatt-hour based on the April billing. This means a household consuming 200 kWh of electricity a month would pay P1,622.26 instead of P1,454.77.
However, power rates have significantly changed since April and comp**ations on the effects of the e-VAT have yet to be finalized. The increase in Meralco rates is expected to be finalized on Monday.
Toll rates will go up starting today to reflect the tax, according to the operator of the South Luzon Expressway. As a result, the toll rate for cars from Alabang, Muntinlupa to the Nichols toll plaza in Pasay City will go up from P55 to P60.50.
Because electricity and petroleum products are major inputs in many industries, prices of other basic commodities and services are expected to rise.
Aside from electricity and petroleum, previously VAT-exempt products and services that are now covered by the tax include coal, natural gas and other indigenous fuel; electric cooperatives; domestic transport of passengers by air and sea; medical and legal services; cotton, cotton seeds and non-food agricultural products; and works of art, literary works and musical compositions.
Block implementation
The e-VAT also increases the corporate income tax from 32 percent to 35 percent.
Opposition congressmen yesterday asked the Supreme Court to block the implementation of the e-VAT, the centerpiece of the government's tax reform program aimed at cutting the budget deficit.
In a petition, the legislators said the court should declare the new law null and void for being unconstitutional because it gave power to Ms Arroyo to raise the VAT from 10 percent to 12 percent next year.
"The power to tax is legislative in character, and thus a legislative prerogative," the petition said. "Being legislative in nature, the power to tax may not be delegated."
But the Department of Finance (DoF) yesterday said that even court petitions for an injunction would not derail e-VAT's implementation, explaining that under the law, no court can stop the collection of taxes.
Revenue gains
Ms Arroyo, who is under severe pressure from allegations of corruption and electoral fraud, signed into law last month the bill expanding the VAT, a form of sales tax, as part of her administration's revenue-raising measures.
The government has said it expected net revenue gains of P28 billion to P31 billion this year from ending VAT exemptions on several sectors based on a 70-percent collection rate.
It said additional revenues from the VAT law would rise to between P97 billion and P105 billion yearly starting 2006, after the President exercises her powers to further raise the VAT rate.
The finance department has said that 70 percent of the proceeds from the new tax measure will be used to address the deficit while 30 percent will go to budgetary support.
The government incurred a budget deficit of P67.8 billion in the first five months, well within the target of P77.8 billion for the period. The government is aiming to limit the deficit to P177 billion to P180 billion for the whole year following a deficit of P187 billion in 2004.
Local oil prices, steadily rising due to soaring international oil prices that recently hit an all-time high of $59.23 a barrel, are not expected to fully reflect the 10-percent increase brought about by the e-VAT.
Mitigating measures
This is because of mitigating measures the government is adopting such as the removal of excise taxes and the reduction of tariffs on diesel, kerosene, unleaded gasoline and LPG.
According to DoE estimates, the price of diesel will go up to P29.50 a liter upon the imposition of the e-VAT from P28.95 a liter (as of June 27).
Diesel prices would have gone up to as high as P31.85 a liter if not for the removal of the P1.63-a-liter excise tax on the product and the reduction in crude and finished product tariff from 5 percent to 3 percent, equivalent to 50 centavos a liter at the pump.
Kerosene will be sold at an average of P31.12 a liter from the June 27 price of P29.39 a liter. Mitigating the impact of the e-VAT on kerosene is the removal of the 60-centavos-a-liter excise tax and the tariff reduction, which is also equivalent to 50 centavos a liter.
Starting today, unleaded gasoline will be sold at an average price of P33.03 a liter, P2.60 higher than the June 27 price of P30.43 a liter. The tariff reduction softened the e-VAT impact on unleaded and regular gasoline by 40 centavos.
The price of regular gasoline will rise to P31.45 a liter from the June 27 pump price of P29.44. While the product will still be slapped with an excise tax of P4.35 a liter, this is still lower than the pre-e-VAT excise tax of P4.80 a liter.
Bunker fuel, which is usually used for power generation, will be retailed at P19.90 a liter, up by P1.22 from P18.68 a liter as of June 27. The e-VAT impact is softened by the removal of the 30-centavos-a-liter excise tax on the product as well as the tariff reduction, which will yield a price reduction of 29 centavos a liter.
Tariff slash
Prices of LPG will shoot up to P416.87 per 11-kg cylinder from P387 per cylinder. The tariff slash will result in a price cut of P8.03 per tank. LPG also continues to be exempted from the excise tax.
Energy Secretary Raphael Lotilla said at a briefing yesterday that, while fuel prices would predictably be higher upon the imposition of the e-VAT, post-VAT prices were still lower than expected due to the mitigating measures that the government put in place, including the excise tax removal for some products and the tariff cut.
He said the DoE and other government agencies were cognizant of the fact that the new tax would be slapped at a time of high world oil prices.
Reasonable
The Independent Philippine Petroleum Companies Association (IPPCA) said the DoE price estimates were fairly "reasonable," although actual diesel prices could go higher than projected.
"The final increase may be 5-8 percent of the current pump price. For diesel, (actual prices) will be a bit higher (than the DOE estimates), but it will not be more than 5 percent of the current price," Ippca chair Fernando Martinez said.
Outdated
"Yes, [the DoE figures are] accurate. But some assumptions, like the base price, are outdated," he pointed out.
Total (Philippines) Corp. president and managing director Jeff Attwood said the DoE comp**ations, while fairly accurate, "do not reflect the recovery of duties and specific taxes in current inventory that have already been paid, as well as the actual cost today of petroleum products in the international market."
The company still had to sell fuel that were purchased with the excise taxes and at a tariff of 5 percent. With reports from Philip C. Tubeza and Armand N. Nocum
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