MANILA (Mabuhay) — Washington-based World Bank urged the Philippine government Friday to raise the excise tax on petroleum in order to offset the revenue losses from oil imports arising from depressed global prices of the commodity and have more money for much-needed investments that will support growth in the long run.
The impact on fiscal will be significant unless government will find a way to offsetting measures, World Bank senior country economist Karl Kendrick Chua told reporters in a briefing in Taguig City.
“In the Philippine economic update, we proposed that we use this window of opp to raise excise tax on petroleum as this is one of the most equitable, efficient,” he said.
The economist said excise tax is one of the major taxes on oil, but this has not been adjusted since 1997, resulting in huge losses to revenues and gross domestic product (GDP).
“Since 1997 up to today, we have been losing on average 1 percent of GDP, close to P120 billion a year,” Chua said.
Apart from excise tax, the Philippine government has been losing at least P20-30 billion from value added tax (VAT) on petroleum due to the huge decline in oil prices, he said.
“This decline is already causing us around P30 billion in VAT because the prices have gone down. As you know, the VAT is 12 percent on the price,” Chua said.
In the same briefing, World Bank director of development prospects group Ayhan Kose said oil prices in world markets are expected to stay weak in the next two years.
“In the latest commodity outlook, we foresee [an average price of] $53 per barrel in 2015 and in 2016 the price will be $57 per barrel,” he said.
This means bigger revenue losses for the country, Chua said, especially with a pending bills in Congress to lower the corporate and individual income tax rate.
“If you add the reforms, the bills in Congress that have not yet been enacted, to lower the income tax rate… you will see an even more pressing need to find offsetting measures,” he said.
“And one of the easiest is raising the excise tax on petroleum,” he added.
Higher revenues will allow government to spend more on the critical infrastructure, the World Bank economist said.
“Over the medium term, if you want your growth to be faster, you need to invest more. You need a stable source of revenues,” Chua said.
“Our projection is that we will reach our potential GDP by 2017. What it means is that if we do not have more investment in power generation, in roads, then we will hit our potential – it will be very hard to grow about 6 percent starting 2017,” he explained.
In 2014, Philippine gross domestic product (GDP) grew 6.1 percent, below the 6.5 to 7.5 percent government forecast for the period, dragged down by slow government spending in the third quarter.
The economy was then fueled by household consumption, which accounts for 70 percent of GDP.
With oil prices continuing to slide, household consumption will be stronger, driving the economy, Chua said.
“So we see GDP actually increasing by 0.3 percent. But then there are many other factors—whether government can recover from the spending slump, whether exports can recover, whether investment can be sustained,” he said.
“The underlying… how do you make sure investments are there? You have to improve governance and accountability of public spending. You have to find new sources of revenues, and the best way to do it is to remove from high-rate tax system that exempt so many people into a broader-based tax system where rates could be lower but everyone is treated at an equal footing,” Chua noted. (MNS)