Tag Archives: VAT

Oil deregulation

A billion pesos daily in extra profits, taxes for oil firms, BBM

Image from The Manila Times

The oil companies and the Marcos administration are earning almost a billion pesos per day in extra profits and taxes due to unreasonable weekly changes in pump prices. 

As the public grapple with high prices, it appears that the oil firms and the government are making a killing from the perverse and speculative adjustments in the prices of petroleum products.

Making a killing

For diesel and gasoline alone, they are collecting an additional income of around ₱966.33 million per day. Of the said amount, the oil companies take some ₱850.37 million per day in extra profits while the government collects about ₱115.96 million daily in additional value-added tax (VAT) revenues.

The amounts are based on the estimated overcharge that oil firms implement weekly. As of the Oct 18 price adjustments, diesel price changes are around ₱25.48 per liter higher than what is supposedly warranted by movements in international benchmark prices and the foreign exchange. For the same period, the estimates for gasoline are pegged at ₱12.27 per liter. The estimates used the benchmark Mean of Platts Singapore (MOPS), which the Department of Energy (DOE) says is the reference for determining local pump price movements. 

The estimated overcharge from the weekly price fluctuations is compared to the country’s diesel and gasoline consumption to reckon how much the oil firms and the government potentially make in additional profits and VAT revenues. In 2021, the demand for diesel was 10,590 million liters (ML), while it was marked at 6,757 ML for gasoline, according to the Oil Industry Management Bureau (OIMB).

Most of the extra profits the oil companies raked in went to the industry’s biggest players, based on their market share as of 2021. Petron, which accounts for 19% of the downstream oil market, cornered about ₱163.02 million daily. With a 15% market share, Shell gained around ₱127.21 million daily. Phoenix (7% share) got some ₱63.35 million, and Chevron (5%) was about ₱45.15 million. 

The additional tax revenues that the government amasses from high prices and unfair price adjustments explain why it wants to keep the Oil Deregulation Law despite energy officials recognizing that global price fluctuations are mainly speculative.

Excessive global prices

What we see as apparent price manipulation in the weekly price movements of petroleum products does not fully capture the extent of excessive oil pricing. To illustrate this, one can look at the reported production cost of a barrel of crude oil and compare it with the international benchmark prices. In 2016, for instance, the production cost of crude oil in Saudi Arabia, Iraq, and Iran ranged from just $9 to 11 per barrel. During the same year, Dubai crude averaged $41.47 per barrel – or a difference of $30.47 to 32.47 a barrel.   

Asian countries, including the Philippines, use Dubai crude prices to determine the cost of crude oil (and MOPS for refined petroleum products). In 2021, more than 60% of the country’s crude oil imports came from Saudi Arabia.

Oil importing nations refer to Dubai, MOPS, and other international benchmark prices to determine domestic pump prices and price changes. These benchmark prices reflect the price in the oil spot market – i.e., “on-the-spot purchases of a single shipment for prompt delivery at the current market price,” as defined by the US Energy Information Administration (EIA).

However, these volatile spot prices, prone to speculative assaults, do not accurately reflect the price of oil stored and sold in the local market. Long-term supply contracts, not spot prices, cover most of the physically traded oil and are retailed in refilling stations. Some estimates say the spot market accounts for 35-40% of physical crude oil sales.

In the Philippines, because of a deregulated and privatized downstream oil industry, policymakers and consumers are blind to how much of the oil in the market is covered by spot transactions and long-term supply contracts. We can assume, nonetheless, that the major players with ties to the transnational oil companies operate under the terms of supply contracts and not the spot market.  

Financialization and speculation

Meanwhile, the greater financialization of the global oil futures market since the early 2000s paved the way for increased speculation in oil commodities that impact spot prices. According to the EIA, the futures market is where futures contracts (i.e., a standard agreement to buy or sell a specific commodity of standardized quality, such as crude oil, at a certain date in the future) are bought and sold. 

The EIA explains, ” If oil producers want to sell oil in the future, they can lock in their desired price by selling a futures contract today. Alternatively, if consumers need to buy crude oil in the future, they can guarantee the price they will pay at a future date by buying a futures contract.”

But increasingly, under a highly financialized global economy, participants in the futures market are not only those with an actual commercial interest in buying and selling physical oil. They now include financial players who merely want to profit from the rise and fall in oil prices. 

“In addition to oil producers and consumers, futures contracts are also bought and sold by market participants or speculators who do not produce or consume crude oil. These types of traders buy and sell futures contracts in anticipation of price changes, hoping to make a profit from those changes,” the EIA says.  

Beyond fuel taxes

Economic fundamentals cannot explain the erratic behavior of oil prices in the past two decades. Global prices move based on the unregulated betting of big financial players on whether prices will go up or down in the future, taking a cue from emerging global events in geopolitics, economy, and even climate, among others. At one point this year, the pump price of diesel ballooned by ₱13.15 per liter, then fell by ₱11.45 the following week. Supply and demand do not account for these extreme price swings.  

The overpricing that the oil firms impose from the weekly price adjustments alone – on top of what they overcharge on the actual costs of oil, especially by the big global players, and the impact of speculation – makes calls to reduce, suspend or remove oil taxes ultimately inadequate. Removing the VAT and excise tax will provide immediate relief, but they are not enough in the context of escalating prices and price manipulation. Such demands should complement the primary call to end the Oil Deregulation Law, regulate oil prices, and curb manipulation and speculation as an immediate people’s demand. ###

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Oil deregulation

Beyond fuel taxes, regulate and nationalize the oil industry

Photo from Anakpawis

Exactly how much are jeepney drivers losing because of the unabated oil price hikes?

The pump price of diesel has already increased by ₱18.45 per liter (including the latest adjustments on Oct. 26) this year. That is equivalent to two passengers paying the minimum fare of ₱9. Considering that jeepneys are only allowed a maximum of 50% passenger capacity, the impact on a driver’s income is tremendous. A 20-passenger jeepney can carry only ten passengers. With the rise in diesel prices this year, jeepneys practically take a maximum of just eight passengers paying the minimum fare.

A month’s worth of rice

Let us look at the UP Diliman to SM North Edsa route, for instance. This entire route is about 13.25 kilometers roundtrip. Based on one study, a jeepney consumes around one liter of diesel per seven kilometers. So, the UP-SM roundtrip uses up about two liters of diesel. Meaning, a driver loses ₱36.90 per roundtrip due to the price hikes. That amount is almost equivalent to the lowest rice price per kilo (₱38) in NCR. 

A 20-passenger jeepney usually has a full tank capacity of 60 liters, which means that the driver is spending ₱1,107 more to fill up his tank. That is equivalent to about 29 kilos of rice – or two weeks’ worth of the regular consumption of a 5-6-member household. 

For the UP-SM driver, his full tank will last for around 30 roundtrips. Assuming he makes ten roundtrips per day, it means that he must refill every three days – or twice in one week. He thus spends ₱2,214 more on diesel due to the price hikes. That is equivalent to a month’s worth of his household’s rice consumption.

However, raising the minimum fare will only shift the burden of the oil price increases from the drivers to the commuters. Like the jeepney drivers, commuters are also working-class people whom the pandemic severely battered and barely make a living. 

What about the proposal to revive the Gloria Arroyo-era Pantawid Pasada program? For one, the cash aid like during Arroyo’s time will likely be too small to make a dent in runaway oil prices. The proposed subsidy cited in media reports, for instance, is between ₱1,700 to 2,000 per month. As mentioned, the UP-SM driver is already spending an additional ₱2,214 per week. But the amount of cash subsidy is a secondary issue. The primary point is that the Pantawid Pasada merely shifts the burden of the oil price hikes to the taxpayers, including the drivers themselves. 

Making oil firms, government accountable

Meanwhile, the oil companies that profit immensely from high prices and unreasonable price hikes are left off the hook. Policy interventions should primarily target them. One is through effective price regulation to stop their profiteering when they adjust prices every week.

Like the oil companies, we must hold the government accountable as well. The people should press the policymakers to abolish the regressive and exorbitant fuel taxes, such as the 12% value-added tax (VAT). This move can immediately bring down pump prices and provide much-needed relief for the jeepney drivers and the public.

At 12%, the Philippines charges the highest rate in Southeast Asia for VAT or VAT-like impositions. Cambodia, Indonesia, Laos, Malaysia, Thailand, and Vietnam charge 10%, while Singapore charges 7%. We also charge a higher rate than some of the most prosperous countries in the Asia Pacific like Australia, Japan, and South Korea that all charge 10%, and Taiwan, which charges just 5 percent.

While it is not the Philippine government that sets the price or the price adjustments in the global oil market, it should nonetheless drop its defeatist attitude and cries of imagined helplessness as Filipinos suffer from rising prices.  The government can directly and immediately reform its tax policy on petroleum products and reduce the cost not just for jeepney drivers and their households but for the entire economy.

Regulation and nationalization

Beyond abolishing oppressive fuel taxes, the government can and must repeal Republic Act (RA) 8479 or the Oil Deregulation Law to protect the public and the country from excessive prices and unreasonable price increases. In its place, policymakers must develop and implement a comprehensive program for regulating the downstream oil industry. 

This program, which Congress can legislate, should contain the following essential components: (1) Centralized procurement of imported crude oil and refined petroleum products; (2) Buffer fund, which can be financed through the operations of the centralized procurement to cushion the impacts of sudden surges in global prices; (3) Transparent determination of pump prices, including through full public disclosure of pricing scheme and inventory of the oil firms; (4) Democratic public consultations or hearings to justify oil price adjustments; and (5) State participation in refining and distribution of petroleum products.

Seldom discussed is that the issue of high oil prices and allegations of price manipulation is just a consequence of the fundamental problem of the Philippine oil industry, which is foreign monopoly control through their direct investments and strategic partnerships with the local compradors. The country must seriously pursue a long-term nationalization program that would end the domination of transnational companies and their local agents. The initial reforms cited earlier to regulate the downstream activities of the oil companies are a positive step towards nationalization. 

Nationalization requires the reorientation and restructuring of the oil industry to uphold the people’s welfare and advance the national interest. For example, with a nationalized oil industry, the people and economy would genuinely benefit from undertakings like the Malampaya instead of foreign capital and local cronies and oligarchs exploiting such projects for their narrow private interests.It is hard to nationalize the oil industry if the government would not shift from its current neoliberal development paradigm, which permits the unbridled operation of so-called market forces and relies too much on imported commodities and foreign capital. The nationalization of the oil industry can only be successful within a national industrialization program where internal sources of growth are promoted and protected. ###

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Consumer issues, Oil deregulation

Oil firms overpriced gasoline by Php3.48 per liter in 2018; diesel by Php1.48

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(Photo: Novinite.com)

After a series of oil price cuts that started from mid-October 2018 up to the first week of the new year, domestic pump prices have begun to climb up again. The recent increases are due to the combined impact of rising global oil prices and of the second tranche of additional excise tax on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

For consumers, it is bad enough that they are made to shoulder a heavier tax burden from a commodity as vital as oil. It is even greater injustice that they are forced to pay for overpriced oil and for even bigger fuel taxes due to such overpricing.

As oil firms are wont to do in a deregulated regime, they implemented price adjustments in 2018 that were higher than what were justified (at least based on Department of Energy or DOE standards) by the weekly changes in global benchmark prices as well as foreign exchange rates.

For 2018, oil companies overpriced gasoline by an estimated Php3.48 per liter and diesel by about Php1.48 per liter. (See Table 1)

tab 1 summary of overpricing 2018

The figures were based on the estimated impact on local pump prices of the weekly adjustments in the Mean of Platts Singapore (MOPS) prices of gasoline and diesel, as well as of the peso-US dollar exchange rates. The results were then compared to the actual price adjustments implemented by the oil companies. According to the DOE, the Philippines uses the MOPS prices as benchmark for pricing finished petroleum products that are retailed in the country.

Put another way, oil firms were implementing higher price hikes when global prices were rising and lower price rollbacks when global prices were falling. This means that consumers were still being abused by the oil companies even as they were rolling back prices in the last three months of 2018. In fact, looking at Table 1, the oil firms overpriced more during the successive weeks of price rollbacks in October to December.

The Oil Deregulation Law (Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998”) and its regime of price adjustments without public consultations created the environment for such abuse to be committed with impunity.

These allowed the oil firms to rake in around Php33.93 billion in extra profits last year on top of their regular income, and the Duterte administration to collect some Php4.63 billion in additional revenues from the 12% value added tax (VAT). Apparently, it is not in the interest of the government to regulate oil price adjustments because of the tax windfall that high and overpriced oil generates. (See Table 2)

tab 2 summary extra profits & vat 2018

It is important to stress that the “overpricing” based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly “justified” amounts by so-called international benchmarks such as the MOPS.

Oil price unbundling

During the height of unabated oil price hikes at the start of 2018, the DOE initiated its proposal to unbundle the prices of petroleum products. The latest is that the DOE is already finalizing a circular to implement the proposed unbundling meant to put more teeth in monitoring oil prices and protect the consumers. Industry players and energy officials have already agreed on seven out of the eight major components of the unbundled price.

Understandably, the remaining contentious item in the planned unbundling is the “industry take”, which indicates the profit margin and operation cost of the oil companies. Nonetheless, the DOE expects to finally issue the circular by the first quarter.

While unbundling could make the cost breakdown per liter of fuel products seem more transparent, it will still not guarantee fair price setting. Adjustments in prices will remain deregulated and oil firms, especially the largest ones, can continue to abuse the weekly price adjustments and overprice their products. This is similar to the unbundling of electricity rates in the privatized and deregulated power industry, which did not stop the abusive pricing practices of the big power monopolies.

Besides, real transparency in prices requires that all oil companies disclose their term contracts with their suppliers, detailing key information such as the specific source/supplier of imported oil, the actual negotiated import price, volume of oil imports, etc.

Impact of the TRAIN Law on oil prices

Compounding the overpricing by the oil companies is the additional fuel tax imposed by the Duterte administration. The TRAIN Law (or Republic Act 10963) will add another Php2 per liter in excise tax to the pump prices of gasoline and diesel; Php1 per liter for kerosene; and Php1 per kilogram (kg) for liquefied petroleum gas (LPG). Including the 12% value added tax (VAT), the second round of tax hike under the TRAIN Law will increase the price of gasoline and diesel by Php2.24 per liter; kerosene by Php1.12 per liter; and LPG by Php1.12 per kg.

In 2018, the controversial tax scheme of the Duterte administration already added Php2.80 to the price of diesel; Php2.97 for gasoline; Php3.36 for kerosene; and Php1.12 per kg for LPG, representing the additional excise tax and the corresponding VAT. Adding to this year’s adjustments, the TRAIN Law’s total price impact as of 2019 would be an increase in the pump price per liter of diesel by Php4.80; gasoline by Php5.21; and kerosene by Php4.42. For LPG, the total price hike is Php2.24 per kg or a total of Php24.64 for the usual 11-kg cylinder tank that households use.

The bad news is that there remains still another tranche of excise tax increases next year under the TRAIN Law. The scheduled increases for 2020, including the VAT, are: diesel, Php1.68 per liter; gasoline and kerosene, Php1.12 per liter; and LPG, Php1.12 per kg. Table 3 summarizes the impact of the TRAIN Law on oil prices.

tab 3 train impact on oil prices

As of the latest price adjustments (i.e., Jan 15, 2019) and including the second tranche of fuel excise tax under the TRAIN Law, the pump price of diesel is more than Php12 per liter higher than its level before the Duterte administration took over; gasoline is almost Php9 higher. Of the said price increases, the additional tax burden (i.e., excise and VAT) imposed by the TRAIN Law accounted for Php5.04 per liter for diesel (41% of the total price increase in diesel under Duterte) and Php5.21 per liter for gasoline (59% of the total increase in the price of gasoline). (See Table 4)

tab 4 oil price before & under duterte jan 2019

If policy makers were to truly address the problem of high oil prices, they should look at both the TRAIN Law and the Oil Deregulation Law. Removing the unnecessary fuel tax burden and making oil taxation more progressive will immediately bring down the price of oil for sure. But oil prices will remain exorbitant and price adjustments will remain unjustified as long as the oil industry is deregulated. ###

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Economy, Fiscal issues, Oil deregulation

How to bring down oil prices by as much as Php10 per liter and why it is justifiable

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(Photo: ABS-CBN News)

Suspending the imposition and collection of the 12% value-added tax (VAT) and the additional excise taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) Law could immediately bring down the prices of oil products by more than Php8 to as much as Php10 per liter. This is urgent as oil prices continue to soar, and with inflation further accelerating to a fresh nine-year high at 6.7% in September.

While the Bangko Sentral ng Pilipinas (BSP) claims that inflation may have already peaked last month, projections such as that of the US-based Energy Information (EIA) peg even higher global oil prices in the fourth quarter of 2018 due to lingering supply concerns.

Removing oil taxes now is also justifiable and fair, considering that apparently in just nine months (Jan to Sep 2018) the government may have already almost equaled their full year 2017 collections from the VAT on diesel and gasoline, based on estimates. Total revenues from excise taxes on oil products in the first six months of the year, on the other hand, are 181% higher than what was collected during the same period last year according to an official Department of Finance (DOF) preliminary report. All these mean that government can afford to forego additional windfall oil tax revenues, if only to protect the public from further taking a hit from escalating cost of living.

Unabated price hikes

Oil firms advised that starting Oct 9, the price of diesel will again go up by Php1.45 per liter; gasoline, Php1.00; and kerosene, Php1.35. These upward adjustments will bring the total increases for the year at Php14.95 per liter for diesel; Php14.37 for gasoline; and Php14.00 for kerosene. The latest increases are the ninth straight round of oil price hikes (OPH) in as many weeks, and the twenty-ninth for the year.

With the recent OPH, the common price of diesel in Metro Manila is now at almost fifty peso per liter (Php49.75) while gasoline (RON 95) is already the approaching sixty-two-peso mark (Php61.50). At these levels, oil prices are now at their highest in nominal terms in the past decade.

The VAT is equivalent to Php5.97 per liter for diesel and Php7.38 per liter for gasoline (or 12% of their respective common price). The TRAIN Law’s additional excise taxes, meanwhile, is at Php2.50 per liter for diesel and Php2.65 for gasoline for this year. Thus, removing both from the current common price will translate to an immediate reduction of Php8.47 per liter for diesel and Php10.03 for gasoline. (See Table)

Oil prices, TRAIN excise & VAT as of Oct 9

Suspending the oil VAT and excise taxes under the TRAIN Law should be doable for the government since doing so would no longer adversely impact its revenue generation from petroleum products. Economic managers projected international crude oil prices to be at just between US$45 to 60 per barrel and the foreign exchange (forex) rate at just Php48 to 51 per US dollar for 2018. Actual Dubai crude prices for the year, however, have ranged between US$60 to 80 per barrel while the forex rate is averaging Php52.48 per US dollar so far this year.

Windfall revenues

In other words, the Duterte administration has been collecting windfall revenues from the 12% VAT on oil products due to incessantly increasing prices as a result of higher than anticipated Dubai crude prices and a weaker peso. The DOF reported that overall VAT collections in the first semester of 2018 have reached Php179.95 billion, or about Php1.51 billion higher than what was raised during the same period last year.

While the DOF also said that VAT collections in the first half were 19% short of the government target for the period, this was not due to lower revenues raised from the oil VAT, which as mentioned have certainly skyrocketed due to higher pump prices. Apparently, small and medium enterprises (SMEs) and self-employed individuals that used to remit the VAT before the TRAIN Law became effective are now using other tax options under the new law. But that VAT collections in the first semester are still slightly higher than last year’s first half total is indicative of how much windfall the government has raised from rising oil prices.

There is no publicly available data on how much revenues that government has raised so far from the oil VAT. But using the average common price in Metro Manila for 2018 and based on domestic oil consumption data as of 2017 (as monitored and reported by the Department of Energy or DOE), VAT revenues from diesel and gasoline can be estimated. At a Php43-per liter average common price and daily consumption of almost 29.91 million liters, diesel generated about Php42.29 billion in VAT revenues from Jan to Sep 2018. At a Php55-average common price and daily consumption of almost 17.02 million liters, gasoline generated around Php30.78 billion in VAT revenues during the same period.

That’s about Php73.06 billion in VAT revenues from diesel and gasoline. For comparison, at an average common price of Php32 per liter in 2017 for diesel and Php46 for gasoline, total VAT collections from the two oil products for full year 2017 may have reached an estimated Php76.21 billion.

Removing onerous taxes

These are, of course, just estimates and actual collection figures may differ, perhaps even widely. But there should be no significant disparity between the comparison of oil VAT revenues between 2017 and 2018, whether estimates or actual collection data. The point is that government can decide to stop collecting more oil taxes now to immediately ease the burden of the public, even simply based on the fact that they have already collected enough.

Meanwhile, excise taxes collected from all petroleum products reached Php18.03 billion in the first six months of 2018, or almost thrice of the excise taxes collected from oil products in the same period last year, according to initial DOF data. That should be more than enough given how inflation has rapidly accelerated this year with increasing oil prices under the TRAIN Law as one of the primary culprits.

The whole point of raising taxes is to send back the generated resources to the people in the form of key economic and social services as well as programs and projects that benefit them and the country. But if the taxes are so onerous especially for the poor such as the VAT and excise taxes on petroleum products, they become an unnecessary burden and are oppressive. They negate whatever supposed benefits the people expect to get from the government. For the government to insist on collecting such taxes is unacceptable.

Imagine, for instance, a jeepney driver or small fisher whose income has been substantially eroded by increasing diesel and gasoline prices. Public education or health services, even new roads and bridges funded by their taxes are meaningless amid high prices that deprive them of decent living. Then there is the question of whether these tax resources are actually used for public interest and welfare given how corruption remains rampant in the bureaucracy not to mention that many programs and projects funded by these resources are anti-poor by design.

On the contrary, removing the VAT and excise taxes on oil now will have an immediate favorable impact on household budgets. ###

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Consumer issues, Oil deregulation

Who cares about smuggled oil?

oil stickerPetron Corporation, the country’s largest oil company, has alleged that about one out of every three liters of gasoline or diesel sold in the Philippines is smuggled. For the government that translates to P30-40 billion in lost revenues a year, said Petron boss Ramon S. Ang. For the company it means fewer profits because smuggled oil can be sold at extremely low prices and undermine Petron’s market share.

But why should ordinary Filipinos, who have been forever abused by Petron and other big oil firms, care? Jeepney, taxi and tricycle drivers, the small fishers and farmers do not mind buying smuggled oil if that’s the only way they can boost their meager income eroded by ever rising fuel costs. They simply can’t empathize with Petron’s predicament of seeing its profits fall to “just P2.3 billion” last year. They can’t appreciate the lost government revenues either since social services are hardly felt anyway. Just ask Kristel Tejada’s parents.

If there is one issue that matters to ordinary folks in the allegation of Ang is the huge tax burden imposed by government on a commodity as socially sensitive as oil. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12% value-added tax (VAT) and the excise tax. This allows some retailers to sell cheap oil.

How much do government taxes add to the retail price of petroleum products?

As of April 2, 2013, the retail price of gasoline in Metro Manila ranges from P48.65 to P54.64 per liter, based on the monitoring of the Department of Energy (DOE). The VAT is about P5.84 to P6.56 per liter (12% of the retail price). The excise tax, on the other hand, is fixed at P4.35 per liter. Thus, the VAT and the excise tax comprise around 20 to 21 percent of the current retail price of gasoline.

Compare it to the percentage of government taxes to the pump price of gasoline in the US which is just about 12% (more details here). The Philippines, in fact, has one of the largest taxes as a percentage of gasoline retail price in the world, together with Hong Kong, Thailand, New Zealand, Cambodia and Singapore (read more here). The same thing is true for diesel, which is has zero excise tax but is also imposed with the 12% VAT.

The country’s oil products carry high government taxes despite the elimination of the 3% import duty on crude oil and refined petroleum by the Arroyo administration in 2010. Refusing to scrap the VAT and the Oil Deregulation Law, it was government’s attempt to mitigate the impact of soaring global oil prices.

But it was a futile move. Pump prices remained high and continued to increase exorbitantly in a regime of deregulated prices. The basic problem of monopoly control, overpricing and speculation remained, which even the so-called Independent Oil Price Review Committee (IOPRC) acknowledged. And compounding the consumers’ predicament is the oppressive 12% VAT on oil, in which government revenues increase as oil prices skyrocket.

Consumers need lower oil prices. Government must find ways to reduce them. One immediately doable step is to scrap the VAT. Government may retain the excise tax or re-impose the 3% tariff (except for the most socially sensitive oil products like diesel, kerosene and LPG) but the VAT should go. Government should also devise tax measures that will make oil firms, especially the biggest and most profitable ones, shoulder more tax burden.

As for smuggling, it must be addressed within the framework of deep reforms in the industry and with the aim of dismantling the oil monopoly and curbing price abuses. The problem of rampant smuggling can only be solved if the downstream oil industry is strictly regulated by government.

One possible measure is a system of centralized procurement wherein the Philippine National Oil Company (PNOC) or any relevant state agency will be the exclusive importer of crude and refined petroleum. Under this system, it will be easier to track or identify smuggled oil, e.g. anything not imported by the PNOC is automatically considered smuggled. It will also help minimize the overpricing of oil companies. (End)

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Consumer issues, Oil deregulation

Join “people power” vs. high oil prices and Noynoying, join CAOPI

The media called it People Power against oil price hikes. And maybe it is, considering how the issue of very high oil prices has united various groups from a wide political spectrum. From militant labor and transport to businessmen, from progressive lawmakers to the more traditional legislators, from Church leaders to the radical youth, from civil society to national democratic organizations. Looking at the lineup of the convenors and supporters behind the Coalition Against Oil Price Increases (CAOPI), one would get a sense of broadness that could resemble those of the movements which toppled two regimes.

Broad coalition

CAOPI was launched last Monday (March 26) in a press conference at the UP campus in Diliman. Convenors and supporters who were present include the progressive bloc in Congress led by partylist representatives Teddy Casiño of Bayan Muna, Ka Paeng Mariano of Anakpawis, and Raymond Palatino of Kabataan; Zambales Rep. Mitos Magsaysay, one of the most vocal critics of the Aquino administration;  former legislator and now publisher Jacinto Paras; Marikina City councilor Jojo Banzon; Alliance of Concerned Truck Owners and Operators (ACTOO) President Ricky Papa; a representative of National Economic Protectionism Association (NEPA) President Bayan dela Cruz; UP Professor and VP for Public Affairs Danny Arao; Anti-Trapo Movement President Leon Peralta; Francis Mariazeta III, a barangay chairman in Manila; and think tank IBON Foundation Executive Director Sonny Africa. They were joined by national leaders of organizations under the multisectoral Bagong Alyansang Makabayan (Bayan), including militant labor Kilusang Mayo Uno (KMU), transport group Piston, fisherfolk group Pamalakaya, urban poor group Kadamay, women’s group Gabriela, youth groups Anakbayan and National Union of Students of the Philippines (NUSP).

Other personalities who joined the coalition or expressed support but were not present during the launch are Novaliches Bishop Emeritus Teodoro Bacani, Philippine Chamber of Commerce and Industry’s (PCCI) Donald Dee, National Council for Commuter Protection (NCCP) President Elvira Medina, and Manila City Councilor DJ Bagatsing. CAOPI convenors also include members of the Catholic and Protestant clergy, union presidents of the some of the country’s largest companies, as well as student councils of several universities in Metro Manila. (Download the initial list of CAOPI’s convenors and supporters here)

Inaction, crime against the people, too

CAOPI is not calling for the ouster of the Aquino administration. Its raison d’etre is fairly modest – that is for the President to recognize the worsening problem of high oil prices and concretely do something to address it. In its unity statement, the people and groups behind CAOPI said that they are “alarmed and enraged by the inaction of President Benigno Aquino III amid the spate of oil price increases.” The coalition demands that “government immediately intervene to stop the unreasonable oil price hikes, bring down the prices of petroleum products, and control oil prices.”

Edwin Lacierda, Aquino’s arrogant spokesman, as expected dismissed the newly-formed group, insisting that government is addressing the problem. “Kung ayaw n’yong makinig, ano’ng magagawa namin? Kung ayaw nilang maniwala, ano’ng magagawa namin?”

But the simplicity of its message and the concreteness and more importantly, the legitimacy of its demands – amid escalating fuel prices and popular perception of Noynoying – give CAOPI the vast potential to steadily grow and persist, yes, like People Power. Not even the vaunted high popularity rating of Aquino will endure the groundswell of protests and social unrest if government will continue to ignore the problem and insist on its problematic policies like the Oil Deregulation Law and the 12% value added tax (VAT). Note that surveys also show the deteriorating public perception on Aquino’s inaction on high oil prices (for instance, read here).

The Yellow crowd may argue that it is baseless to invoke People Power against Aquino because unlike Marcos and Erap, he is not corrupt. In fact, he is going after Gloria Arroyo, Renato Corona, and their cohorts in plundering the nation. These people are plunderers and they should be punished (although it remains to be seen if Aquino will go all the way in punishing their corruption even if it means undermining the status quo that serves the political elite like Aquino). But going after Arroyo while tolerating and legitimizing the bigger plunderers like the foreign oil companies and their local partners is also a crime against the people. Insisting on collecting the VAT on oil at the great expense of the people is a crime as grave as, if not worse than, collecting tongpats from government projects.

Just and legitimate

CAOPI’s demands and proposals are just and resonate the sentiments of our people. It said that the Aquino administration’s excuse that it is helpless amid escalating fuel prices is unacceptable as it argued that concrete steps can be immediately taken such as: Imposing a moratorium on more oil price hikes, which it said the President can do due to the extraordinary situation of high oil prices undermining public and national interests; immediately bringing down oil prices by removing, suspending or reducing the regressive VAT on petroleum products; and addressing overpricing by oil companies and regulating local prices by and repealing the oppressive Oil Deregulation Law. It challenged President Aquino to exercise political will and implement these reforms to protect the interest of ordinary consumers and the domestic economy. (Download the CAOPI unity statement here)

The group is not asking the people to swamp Edsa to pressure the President to take decisive, pro-people steps against high oil prices, well not yet. But it is asking the public to participate in a series of actions that will force Aquino to listen and do something, beginning with a coordinated noise barrage on March 30. CAOPI declared that it will continue to pressure Aquino and the entire government until they address the urgent problem of excessive oil prices.

Join CAOPI

No group, including the Aquino clique, has a monopoly over People Power, which in its simplest form is about the people asserting its sovereign power to determine which policies best serve their welfare and interests. In demanding that Aquino reverse its position on the VAT and the Oil Deregulation Law and mobilizing the broadest support possible, CAOPI is indeed exercising People Power.

If you wish to become a member or supporter of CAOPI, you may contact its Secretariat at caopi.secretariat@gmail.com and include your name in its Unity Statement. You may also visit the website of Bayan (www.bayan.org) for updates and more information. #

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Consumer issues, Fiscal issues, Oil deregulation

Mar Roxas: From Mr. Palengke to Mr. Perwisyo

Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion (Photo from plurk.com)

On the heels of the successful nationwide people’s protest against high oil prices last March 15, Malacañang reaffirmed its position not to lift the 12% value-added tax (VAT) on oil. One of the administration officials who immediately articulated the Palace stand was Mar Roxas, secretary of the Department of Transportation and Communications (DOTC). Defending the oil VAT, Roxas said that revenues generated by the controversial tax “are being used to render services to the public”. “It’s easy to say ‘stop collecting taxes’ but this would mean that a particular government service will be affected,” Roxas argued.

Mar column

It’s amazing how fast Roxas changed his mind about the oil VAT. To those who have a short memory, let me refresh your recollection by quoting portions of Roxas’s column Mr. Palengke that the tabloid Abante used to publish. The opinion piece, entitled “$100 kada bariles”, was published by the popular daily in its Jan. 8, 2008 issue. It was Roxas’s reaction to the then escalating prices of oil that for the first time breached the $100-a barrel mark.

(Click on image to download full article)

“Hindi na po normal ang sitwasyon natin ngayon. Alam nating ang langis ay talagang nakakaapekto sa lahat ng aspeto ng pamumuhay: transportasyon, pagkain, kuryente, manufacturing ng mga produkto, at marami pang iba. Kaya sa bawat pagtaas ng presyo ng langis, sumusunod naman ang presyo ng iba pang produkto at serbisyo. Nanganganib talaga ang bulsa ni Juan dela Cruz. Maikli na ang kanyang pisi, lalo pa itong iikli.

Naaalala ko, noong kakatapos lang na ipasa ang Expanded Value-Added Tax Law noong 2005, sumipa ang presyo ng krudo mula $36 kada bariles hanggang $56, at natakot tayo noon na sumipa pa ito sa $75 kada bariles.

Ngayon, $100 na, ang layo na sa dating mga presyo at kailangan na talaga ang parehong mga agaran at pangmatagalang solusyon sa umaalagwang presyo ng langis. Kailangan na ng political will. Walang lugar para sa mga “token-ism,” o mga pakitang tao. Kung talagang ginugusto ng pamahalaan na makatulong sa ating mga kababayan, isang malinaw at kongkretong hakbang na maisasagawa ay ang agarang pagsuspinde sa EVAT sa langis at mga produktong petrolyo.

Agarang ginhawa sa halagang P4 kada litro ng diesel o P60 kada tangke ng LPG ang maidudulot nito. Kung gusto talaga ng pamahalaan na mapaginhawa ang buhay ng ating mga kababayan, sana’y suportahan nila ang ating panukala.

Hanggang ngayon, tila ba hindi pa rin nagbabagong-loob ang administrasyon dito. Nakakalungkot, dahil P20-30 bilyon lamang ang mawawala sa pamahalaan sa anim na buwang suspensiyon ng EVAT sa langis, kumpara sa kalakhang P1 trilyong revenues nito. At sabihin nang sa mga social services daw, tulad ng edukasyon at kalusugan napupunta ang pondong ito, nararamdaman ba ninyo ito?

Ang nakakalungkot pa, malaking halaga ng buwis na dapat makolekta ay nawawala dahil sa katiwalian at iba pang mga leakages. Noong 2006 nga, ayon sa isang pag-aaral ng DOF mismo, may P107 bilyon ang hindi nakolekta dahil sa mga leakage. Ang lalong nakakalungkot, ang kalakhan ng mga leakage ay naroon sa mga buwis na hindi nakokolekta sa mga malalaking tao. Hindi nakolekta ang P81.96 bilyong potensiyal na kita mula sa corporate income tax. Samantala, ang tinatawag na “tax gap rate” sa income tax ng mga negosyante at propesyonal ay nananatiling mataas, sa 40%, kumpara sa tax gap rate ng income tax ng mga manggagawa, na nasa 10% lamang.”

Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno. Hangga’t hindi natin nakikita na mahusay ang paggastos ng gobyerno sa pera ng taumbayan, mabuting ibalik muna ito sa kanila upang maibsan ang kanilang kahirapan. Ipinasa noon ang EVAT dahil nanganganib na humina ang ekonomiya dahil sa sinasabi nilang “fiscal crisis”. Ngayon naman, nanganganib na bumagsak ang ekonomiya kapag naipit nang naipit ang pagkonsumo ng ating mga kababayan. Ibang sakit ang ating nararanasan ngayon, hindi puwedeng parehong gamot pa rin ang ating inumin.” (All emphases mine)

People deserve break

Roxas used to think that removing the VAT on oil, even if temporarily as he proposed then, will translate to immediate benefits for the poor. In his 2008 column, he said it’s P4 per liter for diesel and P60 per 11-kilogram (kg) tank for liquefied petroleum gas (LPG). Today, the immediate benefits are even bigger – for diesel, it’s almost P6 per liter and for LPG, as much as P110. “Government believes it should keep on collecting EVAT on oil and be the sole arbiter on how these revenues should be reallocated. I say, let’s give our people a break… Give the people instantaneous relief from high prices and meager incomes,” said then Senator Roxas in a separate Dec. 20, 2007 press statement. Noon, the people deserve a break, pero hindi na ngayon?

VAT for debt servicing

Indeed, the points Roxas had raised against the continued collection of VAT amid soaring oil prices remain as valid as ever. His arguments, in fact, could very well answer the Aquino administration’s excuses to justify the VAT on oil today. For instance, while revenues have increased because of the oil VAT, social services continued to be marginalized in terms of government spending. Most of the revenues are being siphoned off by debt servicing. When Roxas was raising the issue of oil VAT in 2008, social services comprised less than 21% of total public expenditures while the total debt burden (interest payments and principal amortization) accounted for more than 34 percent. In 2011, preliminary data show that social services are still marginalized at less than 23% of public expenditures while the debt burden continued to hold the lion’s share with more than 31 percent. As Roxas said, “Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno”. Why should we allow the Aquino administration to be the sole arbiter on how these resources should be used?

Tax leakage

Roxas’s point on the tax leakage, meanwhile, remains a compelling argument against the VAT on oil. A 2010 study by the National Economic and Development Authority (NEDA) estimated that individual tax leakage could reach at least P35.69 billion a year from 2011 to 2016. From 2001 to 2005, the individual tax leakage was pegged at P35.74 billion a year, according to a 2006 study by the National Tax Research Commission (NTRC). Despite the hype of Daang Matuwid, the fact remains that bureaucratic corruption, inefficiency, and wastage continue to deprive government of potential revenues. Alas, like the Arroyo administration, the Aquino government is over-relying on the regressive and burdensome VAT instead of finding other ways to raise revenues such as addressing the perennial tax leakage.

“Perwisyo”

As mentioned, Roxas is now dismissing the very same arguments he once espoused against the oil VAT. For him, protest actions against the VAT and deregulation – issues he used to consider as legitimate concerns that government must address – are “perwisyo” or nuisance. Of course, only the naïve will be surprised by such turnaround of a traditional politician. Roxas obviously just rode on the very popular anti-VAT sentiment when he was still eyeing the presidency. (He eventually gave way to Aquino and ran for the vice presidency but lost to Makati Mayor Jejomar Binay in the 2010 elections.) But now that he is part of the incumbent administration as a Cabinet official, the oil VAT has suddenly become indispensable.

Thus, from the consumer advocate Mr. Palengke, Roxas has now transformed into the VAT apologist Mr. Perwisyo.

Illusion of change

Finally, let me share another quotable quote:

“Napakahalaga ang VAT… Ito ang sagot sa mga problemang namana natin… Kung aalisin ang VAT, hihina ang kumpyansa ng negosyo, lalong tataas ang interes, lalong bababa ang piso, lalong mamahal ang bilihin… Kapag ibinasura ang VAT… ang mas makikinabang ay ang mga may kaya…”

That’s not President Aquino or one of Malacañang’s mouthpieces speaking, although the tune is very familiar to the one being chorused by administration officials. It was Mrs. Gloria Arroyo in her speech during her State of the Nation Address (SONA) on Jul. 28, 2008. Arroyo was responding to Roxas and many others who were demanding that the oil VAT be removed or reduced and that pump prices, which then were reaching historic highs, be controlled.

Tapos na ang pamumunong manhid sa daing ng taumbayan? Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion. #

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Consumer issues, Oil deregulation

More Filipinos think Aquino not addressing oil overpricing

"Heartless" oil firms hit for Valentine's Day price hikes

The latest survey of the Social Weather Stations (SWS) shows that while the Aquino administration continues to enjoy high public satisfaction ratings, more Filipinos are dissatisfied with government response on the issue of oil prices. According to the SWS’s Dec. 3-7, 2011 survey, published yesterday (Feb. 13) by the BusinessWorld, the Aquino administration maintained a high 56% net public satisfaction on its general performance.

But the administration also posted a negative 3% on its performance on the specific issue of “Ensuring that oil firms don’t take advantage of oil prices”. The negative 3% is 7 percentage points lower than the already low 4% that it recorded in SWS’s previous survey in September 2011. Furthermore, the issue of oil is also just one of two among the 19 specific performance indicators included in the SWS survey wherein the Aquino administration registered a negative net satisfaction rating. The other is “Resolving the Maguindanao massacre case with justice” wherein government recorded a negative 18 percent.

(Download the complete results of the SWS survey here)

The survey results came out amid fresh rounds of oil price hikes and widespread public perception that oil companies are overpricing their products and accumulating huge amounts of profits at the people’s expense. The SWS findings clearly indicate that the public is not buying the Aquino administration’s response to the problem of high oil prices and overpricing charges against the oil firms. This includes the Pantawid Pasada program and the establishment of a so-called independent panel to review “the books of oil companies to ensure transparency in fuel pricing”.

The adverse public opinion against the profit-greedy oil companies and lack of government action against their abuses should compel policy makers to initiate reforms in the downstream oil industry. Unfortunately, it is obvious that the people could not expect President Aquino to instigate this policy shift. Aquino has shown unwillingness to heed the demand to repeal the Oil Deregulation Law (ODL) or Republic Act (RA) 8479 and establish a regime of effective state regulation to “ensure that oil firms don’t take advantage of oil prices”. Aquino has also rejected calls for not just the scrapping of the 12% value-added tax (VAT) on petroleum products but even its suspension to at least mitigate the oil price hikes.

But fortunately, some lawmakers have taken notice of the perennial problem of high, escalating, and questionable oil prices and made proposals to look into the ODL and the oil VAT. At the House of Representatives (HoR), for instance, aside from the representatives of progressive partylist groups, legislators from mainstream political parties as well as from moderate partylist groups have also filed bills ranging from amendments of to outright repeal of RA 8479 and suspension or repeal of the VAT on oil.

A quick look at the webpage of the HoR’s committee on energy shows at least five (5) bills proposing to repeal RA 8479 and at least two (2) bills and one (1) resolution proposing review and amendments. On top of these, there are also at least five (5) resolutions calling for a probe on oil pricing as well as one (1) resolution seeking emergency powers for the President to address the oil crisis. Aside from proposals on what to do with RA 8479, at least three (3) congressmen have also filed bills removing or at least suspending the VAT on petroleum products. All in all, there are currently 17 bills and resolutions filed in the 15th Congress of the HoR that aim to reduce and/or control high and escalating oil prices. Meanwhile, at the Senate, at least three (3) bills have been filed that propose to amend RA 8479; institute a system of fair fuel pricing; and impose a cap on the profits of the oil companies.

The following are the bills and resolutions filed at the energy committees of the HoR and Senate on the issue of ODL and oil prices as well as proposals to remove or suspend the VAT on oil filed at the lower chamber’s committee on ways and means:

  • House Bill (HB) 4355 – An act regulating the downstream oil industry and repealing RA 8479 (filed by Rep. Teddy Casiño, Bayan Muna) (Download here)
  • HB 4317 – An act repealing RA 8479 (Rep. Rafael Mariano, Anakpawis)
  • HB 2569 – An act regulating the oil industry, establishing the oil price stabilization fund, and repealing RA 8479 (Rep. Rufus Rodriguez, Partido ng Masang Pilipino or PMP) (Download here)
  • HB 5295 – An act regulating the oil industry thereby repealing RA 8479 (Rep. Winnie Castelo, Liberal Party or LP)
  • HB 00347 – An act regulating the downstream oil industry (Rep. Danilo Suarez, Lakas-Kampi) (Download here)
  • HB 3267 – An act amending RA 8479 (Rep. JV Ejercito, PMP) (Download here)
  • HB 4893 – An act to ensure transparency in pricing, amending RA 8479 (Rep. Romeo Acop, Nationalist People’s Coalition or NPC)
  • House Resolution(HR) 00672 – A resolution directing the energy committee persistent oil shortage and recent spate of oil price hikes (Rep. Ben Evardone, LP)
  • HR 00880 – Resolution directing the energy committee to investigate the price monitoring and regulatory system instituted by the DOE in the light of overpricing allegations (Rep. Luz Ilagan, Gabriela Women’s Party or GWP)
  • HR 01027 – A resolution authorizing President Aquino to exercise emergency powers to address a possible oil crisis in the country (Rep. Teodorico Haresco Jr., Kasangga)
  • HR 01170 – Resolution directing the energy committee to investigate unusually high oil prices in Negros Occidental and other areas outside Metro Manila (Rep. Teddy Casiño, Bayan Muna)
  • HR 01310 – A resolution directing the energy committee to investigate high oil prices in Bacolod City and Negros Occidental (Rep. Roilo Golez, LP)
  • HR 01464 – A resolution directing the energy committee to investigate DOE’s decision of clearing oil firms of price-fixing allegations (Rep. Rufus Rodriguez, PMP)
  • HR 01627 – Resolution urging the HoR to review the ODL for possible amendments (Rep. Mitos Magsaysay, Lakas-Kampi)
  • HB 02806 – An act suspending the VAT on oil (Rep. Rufus Rodriguez, PMP) (Download here)
  • HB 04554 – An act exempting petroleum products from the VAT (Rep. Ma. Theresa Bonoan-David, Lakas-Kampi)
  • HB 2719 – An act exempting petroleum products from the VAT (Rep. Teddy Casiño, Bayan Muna) (Download here)
  • Senate Bill (SB) 1828 – Fuel pricing fairness act (Sen. Miriam Defensor-Santiago, People’s Reform Party or PRP) (Download here)
  • SB 754 – An act amending RA 8479 (Sen. Jinggoy Estrada, PMP) (Download here)
  • SB 2529 – Imposing a 12% cap of paid-up capital on the maximum allowable profits of oil companies (Sen. Antonio Trillanes IV, Indpendent)

There is no shortage of proposals on what to do with the problem of high and soaring oil prices and the abuses that oil companies commit. The public, meanwhile, is deeply discontented with what the Aquino administration has been doing (or not doing) to address the issue. The conditions are favorable to aggressively push for the proposals pending in Congress against the ODL and the oil VAT and compel the Aquino administration to support these initiatives or be further exposed as anti-people and pro-oil cartel. #

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Oil deregulation

Oil firms, government earned P75 B in extra profits, VAT from overpriced diesel, unleaded gasoline

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing. (Photo by Nino Jesus Orbeta)

Transport groups, led by the progressive Pinagkaisang Samahan ng mga Tsuper at Opereytor Nationwide (PISTON), are staging a transport strike today (Sep. 19) in selected routes in Metro Manila as well as in various regions around the country. PISTON and its allies are pushing through with the strike and people’s protest despite the last-minute turnaround of other transport groups following their dialog with President Aquino last week.

Aquino, who promised to be the total opposite of Mrs. Gloria Arroyo, is employing the same tactic of his predecessor when faced with the threat of a transport strike – intimidate the jeepney operators with a cancellation of their franchise. But PISTON members are unfazed and they have every right and reason to go on with the strike even after Aquino ordered a review of the Oil Deregulation Law. The strike should send a strong message to Aquino and the oil companies that the grave abuse they inflict on the public transport sector and the people must stop.

Overpriced oil

Unabated oil price hikes since the start of year have already eroded the daily income of jeepney drivers by about P158 (based on the P5.25-total diesel price hike since January and the 30-liter a day average consumption of a jeepney driver). This is reason compelling enough for drivers to strike. But worse, the increases are unjustified despite the repeated claims of the oil firms, echoed by Energy officials, that they are simply reflecting the movement in global prices and foreign exchange (forex).

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing, or imposing domestic pump price adjustments that are much higher than what global prices and forex warrant. It must be pointed out though that global oil prices are already artificially high due to monopoly pricing and speculation. But local overpricing certainly worsens the impact of exorbitant global prices on the people.

Allegations of overpricing come not only from activists. Senator Ralph Recto, when he was still the Director General of the National Economic and Development Authority (NEDA), for instance, accused the oil firms of overpricing the public by P8 per liter. Our own estimate is that diesel is overpriced by about P7.60 per liter and unleaded gasoline by around P9.85. These figures represent accumulated monthly overpricing from January 2008 to August 2011.

The process detailing how we arrived at these estimates is discussed here.

Extra profits

By selling overpriced diesel and unleaded gasoline, the oil companies raked a total estimated extra profits (on top of their regular profits) of P66.19 billion from January 2008 to August 2011. Meanwhile, the government also has its share of the loot through the 12% value-added tax (VAT) imposed on overpriced diesel and unleaded gasoline to the tune of P9.03 billion. Thus, a total of P75.23 billion has been over-collected from jeepney drivers and other consumers since 2008. Of this amount, P45.05 billion came from diesel and P30.18 billion from unleaded gasoline.

The estimates were derived from multiplying the estimated annual overpricing in diesel and unleaded by their respective demand from 2008 to 2011. For instance, from January to August 2011, the accumulated overpricing for diesel is 88 centavos per liter. Using 2010 daily demand figures for diesel (2011 data are not yet available) of 19.63 million liters multiplied by 243 days (January to August), the estimated extra profits and VAT collections from overpriced diesel is P4.19 billion. 12% of this amount represents government’s VAT collections and the remainder goes to the oil companies. Using this same process, we estimated the extra profits and VAT revenues from overpriced diesel and unleaded gasoline in 2008, 2009, and 2010.

Furthermore, using the annual distribution of the local market per oil company, we can also estimate how much extra profits due to overpricing are collected by each of the Big Three. Of the P75.23 billion, P26.75 billion went to Petron Corporation; Pilipinas Shell, P19.85 billion; Chevron Philippines, P8.82 billion; and the rest of the oil players, P10.78 billion. The remainder, as mentioned, went to the government as additional VAT revenues.

You may access the Excel files of these computations here.

Join the strike

If you think that these figures are scandalously high, they are actually just peanuts compared to the billions if not trillions of dollars that the investment banks and the global oil giants, who supply the country’s petroleum needs, pocket in superprofits from monopoly pricing and speculation.

You may download a PowerPoint presentation on the global oil industry here.

Direkta at buong-buong pinapasan ng mamamayang Pilipino and lahat ng pang-aabusong ito dahil sa Oil Deregulation Law. At kasabwat pa ang gobyerno sa pang-aabuso sa pamamagitan ng VAT.

Support the striking jeepney drivers and operators. Join the transport strike and people’s protest today. #

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Fiscal issues, SONA 2011

SONA 2011: Making sense of Aquino’s facts and figures (part 2)

Aquino missed in his SONA the facts and figures that matter to the people (Photo from pinoypower.net)

Continued from part 1

Aquino also claimed that in his first year as President, the Philippines got upgraded four times by credit rating agencies. Compare this, said Aquino, to the lone credit upgrade and six downgrades the country had in the nine and a half years of the Arroyo administration. A high credit rating means lower interest payments. According to Aquino, the country spent P23 billion less in interest payments from January to April 2011 compared to the same period last year. This amount can supposedly already cover the 2.3 million families in target beneficiaries of the CCT program until the end of the year.

Debt servicing

A credit rating is simply the measure of the credit worthiness of government. Credit worthiness, meanwhile, pertains to the ability of government to repay its debt obligations. A high or favorable credit rating indicates that there is less or no risk of defaulting on our loans. Thus, creditors are more willing to lend with lower interest rates and therefore “less” debt burden for the borrower.

But the credit rating upgrades came at a high cost for the people. To obtain the upgrades, the Aquino administration ensured that debt obligations are being paid dutifully and at the same time resorted to massive under-spending. The result is that an ever increasing portion of spending by the national government went to debt servicing. Since Aquino became President, total debt servicing has already reached P668.65 billion (from July 2010 to May 2011). Until April this year, 49.3 percent of what the Aquino administration has spent went to debt servicing.

Worse than Arroyo

Compare these figures to those under Arroyo, who has been criticized as a heavy borrower and payer. Monthly debt servicing during the Arroyo administration was P48.18 billion while in the first 11 months of the Aquino presidency, it went up to P60.79 billion.  As a percentage of total government spending (including principal payments), the average during the Arroyo administration was 41.5 percent while under Aquino, it has increased to 49.3 percent (until April 2011). (See Table)

Despite the bigger debt servicing, the total outstanding debt of government (including contingent debt) still rose from P5.19 trillion in June 2010 to P5.23 trillion as of April 2011. The P40-billion rise in government debt includes $400 million (about P18 billion) in loans from the Asian Development Bank (ADB) approved last September 2010 to help bankroll the expanded CCT program. This means that the P23 billion mentioned by Aquino as savings from lower interest payments will just be used to pay for the rising debt obligations of government, including those incurred for the CCT.

Fiscal deficit

The credit rating upgrades were also achieved due to the improvement in the national budget deficit, another indicator closely watched to determine a country’s creditworthiness. From an all-time high (in absolute terms) of P314.5 billion in deficit in 2010, the Aquino administration has been able to substantially reduce the shortfall so far this year. From January to May 2011, the fiscal deficit was pegged at just P9.54 billion or 94.1 percent below the deficit during the same period in 2010. It is also way below the programmed deficit of P152.13 billion for the first half of the year.

This lower deficit was made possible by higher revenues and lower spending during the period. As compared to the first five months of 2010, revenues are higher by P81.5 billion while spending is down by P71.08 billion. Furthermore, monthly collections are more than P1.89 billion higher than expected while monthly expenditures are almost P21.55 billion lower than programmed.

At the people’s expense

But the improved fiscal situation was achieved at the expense of the people who are being deprived of social services as government under-spent and much of what it spent went to debt servicing. At the same time, the people are being squeezed dry with burdensome taxes to raise revenues.

To keep credit rating agencies and creditors impressed, Aquino rejected the growing public clamor to scrap or at least suspend the 12 percent value-added tax (VAT) on oil amid soaring pump prices. According to Aquino, “suspending the VAT might trigger a credit downgrade because credit rating agencies would likely deem such a move as ‘fiscally imprudent’.”

The oil VAT has become one of the most important sources of revenues for government since Arroyo introduced it in 2005. But it is also the most oppressive. Revenues from the oil VAT rise dramatically as prices of petroleum products increase. Due to higher oil prices this year, for instance, the Department of Finance (DOF) expects government to earn an additional P18 billion in revenues. From an original forecast of P52 billion in oil VAT earnings based on a global crude price of $80 per barrel, the DOF revised its projection to P70 billion based on $110 per barrel.

High pump prices made a significant contribution to higher tax collections this year. In the first two months of 2011, oil VAT revenues increased by P1.2 billion because of the oil price hikes. Aside from the 12 percent VAT, gasoline products are also charged with excise tax, which generated P4.03 billion for government from January to May this year – P389 million higher than during the same period in 2010.

Facts & figures that matter

Meanwhile, facts and figures that truly matter to the people have been ignored in Aquino’s SONA – P125 or the amount of legislated minimum wage hike workers have long been demanding to help them cope with ever rising cost of living; 6,453 hectares or the size of Hacienda Luisita lands that should have long been owned and controlled by farmers and farm workers; 556,526 or the number of families living in informal settlements in Metro Manila and face the threat of forced eviction; 27 or the number of times that diesel prices have gone up since Aquino became President; and 48 or the number of victims of extrajudicial killings in his first year as Chief Executive, among others.

By using numbers, the President hoped to be objective in presenting his administration’s supposed achievements during the SONA. But he ended up ignorant of the numbers that truly matter. (End)

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