The government faces a potential loss of P72.6 billion in revenue during the final quarter of the year should the suspension of value-added tax (VAT) and excise taxes on fuel be implemented, according to the Department of Finance (DOF).
Finance Secretary Benjamin Diokno said the suspension of fuel tax is “regressive” and “inequitable,” as it will only benefit the top 10 percent of Filipino households who consume nearly half of the country’s fuel.
“The best approach is targeted subsidy to the poor who will be affected by the high fuel prices, to jeepney operators, farmers, and fisher folks. We did this during the height of the oil price increase owing to Russia’s invasion of Ukraine. This targeted gained the approval of the IMF and other international organizations,” Diokno told reporters.
The finance chief said that when a policy is formulated, there is always a need to think of “what’s the greatest good for the greatest number.”
“Removal of taxes is a popular move for politicians. But legislation takes time. Once the elevated oil prices subside, it may not be easy to restore taxes on oil product,” he said.
“It is politically unpopular. That’s the political economy of tax legislation. This has serious implications on fiscal sustainability,” he added.
According to the DOF, foregone revenues, as a result of the suspension of fuel tax, will lead to an increase in the country’s deficit levels, from 6.1 percent to 6.4 percent of GDP in 2023.
Diokno said that revenues lost would mean additional borrowings and interest for the country, resulting in higher debt-to-GDP ratio in 2023, from a projected 61.4 percent of GDP, to 61.7 percent of GDP.
Likewise, foregone revenues amounting to P280.5 billion in total excise tax and VAT on fuel products for full-year 2024 will lead to higher fiscal deficit from 5.1 percent to 6.2 percent of GDP, and higher debt-to-GDP ratio from a projected 60.2 percent to 61.3 percent.