Repeal of VAT on oil not bad for economy

Repealing the value-added tax (VAT) on oil will actually even spur economic growth while mitigating the effects of oil prices on ordinary Filipinos.

Research group IBON disputed claims of some economists that repealing the value-added tax (VAT) on oil will hurt the economy, saying that it will actually even spur economic growth while mitigating the effects of oil prices on ordinary Filipinos.

The group is reacting to the warning made by former economic managers of previous administrations against implementing so-called populist measures like the repeal of the VAT on oil products, price controls, etc.

According to IBON research head Sonny Africa, removing the VAT on oil would stimulate economic activity through savings to consumers on their fuel bills. It is estimated that without the 12% VAT, oil pump prices would go down by as much as P6 per liter.

“These savings mean more money for consumers to spend directly on their needs, and less production costs for fuel-intensive businesses” Africa said.

Reacting to the economists’ statement that these measures will lead to price distortions, Africa said that the monopoly pricing and profiteering of oil companies, together with the oil deregulation policy, are actually the factors that distort the prices. In fact, there is an unexplained difference in the prices of diesel and regular gasoline of around Php5/liter and Php8/liter, respectively compared to their global crude oil prices in the first quarter of the year.

“Repealing the VAT or implementing price controls are not populist measures,” said Africa. “On the contrary, it takes a strong-willed government that has the welfare of the people in mind to implement these urgent measures.”

“Ultimately, the welfare improvements to the country’s consumers and the public transport sector in terms of reduced prices and additional incomes are more than enough reason for government to implement pro-people measures like lifting the VAT on oil,” Africa said. (end)

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