VAT One of the Culprits in Oil Price Increases

Citing data that the VAT on oil is one of the main culprits in the surge in oil prices,  consumer group Kontra-KulimVAT initiated a petition campaign for the scrapping of the value-added tax (VAT) on petroleum products as well as power rates.

Vol. VIII, No. 17, June 1-7, 2008

With the weekly surge in oil prices, the latest of which is a P1.50 ($0.03) increase – the highest in recent months – Consumer group Kontra-KulimVAT (literally: against theft) initiated a petition campaign for the scrapping of the value-added tax (VAT) on petroleum products and power rates.

Kontra-KulimVAT was formed in 2005 at the height of the campaign against the imposition of VAT on goods and services. It has been revived recently amid the rising prices of oil, power and basic commodities.

Anti-VAT advocates initially gathered signatures from commuters of rail transits on May 23 and May 30. At the North EDSA station of the MRT, people from all walks of life signed the petition. In less than two hours, Kontra-KulimVAT said they get an average of 1,000 signatures from every station.


In a statement, Arnold Padilla, spokesperson of Kontra-KulimVAT said, “If government truly intends to ease the people’s burden, one of the most urgent and doable policy reforms is the removal of VAT on oil and power.” Padilla said the petition drive aims to pressure legislators to rush the approval of bills removing the VAT on oil and power before Congress takes a break in mid-June.

The Bagong Alyansang Makabayan (Bayan) earlier revealed that the scrapping of VAT on petroleum products will bring down the prices and will benefit millions of households and drivers of public utility vehicles.

Estimated benefits of oil VAT cancellation based on 7 May 2008 prevailing prices in NCR


How much do they spend on oil?

How much will they save without the oil VAT?

How many will benefit? (nationwide)

With VAT

Without VAT

Jeepney drivers using 30 liters of diesel per daily trip

P1,246.20 per daily trip

P1,096.66 per daily trip

P149.54 per daily trip

426,572 jeepney drivers

Tricycle drivers using 4 liters of unleaded gasoline per daily trip

P194.24 per daily trip

P170.93 per daily trip

P23.21 per daily trip

581,578 tricycle drivers

Small fishers using motorized bancas with 10 liters of regular gasoline per fishing trip

P458.60 per fishing trip

P403.57 per fishing trip

P55.03 per fishing trip

708,000 small fishers

Households using 11-kg LPG tank

P573.61 per tank

P504.78 per tank

P68.63 per tank

8.6 million households

Households using 4.2 liters of kerosene per month for lighting & cooking

P185.30 per month

P163.07 per month

P22.24 per month

9.4 million households

Sources of basic data: DOE, LTO, IMF, NSO, Piston, Pamalakaya, interviews

VAT as the culprit

The VAT on petroleum products is the biggest chunk in the total VAT collections of the Arroyo government.

In an interview, Sonny Africa, research head of IBON Foundation, said that besides the oil deregulation law, the imposition of VAT is one of the main reasons for the increase in prices of petroleum products.

Based on data from the Department of Finance (DOF), P49.20 billion ($1,124,57,428 at an exchange rate of $1=P43.75) was collected from VAT on petroleum products in 2006. This accounts for 63.9 percent of the total VAT collections that year. From January to July 2007, of the P42.7 billion ($976 million) VAT collections, 43.5 percent or P18.6 billion ($425,142,857) was collected from VAT on petroleum products.

Kontra-KulimVAT, citing data from the DOF, noted the VAT increases in petroleum products. From P4.24 ($0.09) per liter in 2006, VAT on oil increased to P4.38 ($0.10) per liter in 2007. As of May 2008, the average VAT on oil is pegged at P5.06 ($0.115) per liter.

Padilla said that the Arroyo administration earns around P5.5 million ($125,714) daily for every P1 ($0.02) per liter increase in pump prices. “This explains why the Arroyo government does not want to scrap the VAT and control oil prices.”

In one of his last statements as press secretary, Secretary Ignacio Bunye said that removing the VAT on oil would result in more problems.  He said that removing the VAT on oil would affect the credit worthiness of the Arroyo government and would weaken the peso. He said that this would eventually increase the prices of petroleum products even more.

Africa said that removing the VAT on oil would result to a more positive rather than negative impact.

Meanwhile, based on May 2008 Meralco rates, Kontra-KulimVAT said that residential consumers will save an average of 72 centavos ($0.016) per kilowatt-hour if VAT is removed. Official data from the Department of Finance (DOF) show that in 2007, the Arroyo government collected P11.4 billion ($260,571,428) VAT on power.

Not for social services

The groups debunked the DOF’s claim that canceling the VAT on oil and power will “impair the delivery of services” by government.

Padilla pointed out, “When the DOF pushed for the imposition of the VAT on oil and power in 2005 due to pressure from the International Monetary Fund (IMF), social services were never in the equation. Their primary concern then, and now, was the country’s credit worthiness. They wanted to assure foreign creditors that government can pay its debts, not to raise more funds for public hospitals, housing or education.”

Independent think-tank IBON Foundation estimates that 87 percent of government revenues go to debt payments. It is equivalent to 11.8 percent of the country’s Gross Domestic Product (GDP) each year.

Padilla concluded, “We could not afford any further delay in the scrapping of the VAT on oil because prices continue to go up. Over the weekend, oil firms jacked up their pump prices and they will implement more increases in the coming weeks. We hope Congress appreciates the urgency of the problem.” Bulatlat

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