Palace scoffs at lifting of VAT on oil

Roxas: Crisis is not the time for business as usual mode

BY JOCELYN MONTEMAYOR

MALACAÑANG yesterday rejected renewed calls for the scrapping of the value added tax on oil products, saying this will only reduce government revenues, increase the budget deficit, and hurt investor confidence.

The finance department has estimated of a loss of P54 billion if the 12 percent VAT taxes on oil is scrapped.

Sen. Mar Roxas has been calling for VAT removal to give the public some relief amid continuing increases in the prices of oil and basic commodities.

Oil prices have now breached the P60 per liter level and oil executives are forecasting a P70 per liter price by August.

Sen. Loren Legarda also called for the VAT scrapping to contain the double-digit inflation experienced for the first time since 1999.

Inflation rate surged to a 14-year high of 11.4 percent last month. The National Statistics Office said almost all commodity groups recorded higher prices last month mainly because of the increase in food and fuel prices.

It is the highest recorded rate since May 1994 when inflation stood at 11.5 percent. It was also the first time inflation had hit double digits since January 1999.

Cabinet Secretary Ricardo Saludo said Roxas' call is contrary to his recommendation that government to sustain fiscal discipline amid concerns of a weakening peso and increased inflation.

"How can one show fiscal discipline and at the same time scrap a major source of revenues which has kept the deficit down and boosted business confidence? And what would Senator Roxas' investment baking friends say to his call for VAT lifting and no interest rate increases?" Saludo said.

Roxas said government should stop piggybacking on the people's pain due to all-time high prices of fuel and food, and should instead review its spending program and prioritize funding for food security and relief.

Roxas, chairman of the Senate trade committee, said that by continuing to impose the 12 percent VAT at this time of crisis, government chooses to become part of the people's burden.

"The situation is very different now. The government should not be in 'business as usual' mode. The situation must be addressed immediately. The government must show it is not insensitive," he said.

Roxas said because present times call for different priorities, the government, in consultation with the people, must review the budget and reallocate non-priority spending to fund urgent needs, particularly food security.

"There really are excesses in government. Aside from addressing that, what we need to do is prioritize. If we have five things we consider important, what's our most urgent priority? Number one, our people should be able to eat. So for items two to five, even if they are important, we should reduce spending for these and transfer funding to number one," he said.

Legarda said the ultimate step to ease the pressure on basic commodities and services is by making oil and power cheaper.

"This could include the scrapping of the VAT from socially sensitive goods like oil and power," she said.

Legarda said the scrapping of the VAT should also be matched by increased investments in technologies that would help the country become less dependent on expensive imported oil.

"More importantly, investments in agriculture should be harnessed to help increase local rice production at lower costs," she said.

Legarda also proposed tapping the support of the private sector in bringing down prices of basic commodities and services.

She said the private sector could also lead in cutting back consumption of unnecessary goods or substituting luxury goods with cheaper ones. - With Dennis Gadil