Poor Pays 90% of VAT on Power, Oil – Expert


Using government data, Ramon Ramirez, electrical engineer and spokesperson of People Opposed to Warrantless Electricity Rates, revealed that the poor pays for 90 percent of the VAT on oil and power.

BY RONALYN V. OLEA
Bulatlat
Volume VIII, Number 26, August 3-9, 2008

The poor and the middle class who probably expected that some measure of relief would be announced by Mrs. Gloria Macapagal-Arroyo during her State of the Nation Address (SONA) last July 28 may have been disappointed. A substantial portion of President Arroyo’s SONA was devoted to defending the administration’s insistence in retaining the value-added tax (VAT) on oil and power.

Arroyo said, “Kapag ibinasura ang VAT sa langis at kuryente, ang mas makikinabang ay ang mga may kaya na kumukonsumo ng 84 porsyento ng langis at 90 porsyento ng kuryente habang mas masasaktan ang mahihirap na mawawalan ng P80 billion para sa mga programang pinopondohan ngayon ng VAT. Take away VAT and we strip our people of the means to ride out the world food and energy crisis.” (If the VAT on oil and power is scrapped, the well-to-do who consume 84 percent of oil and 90 percent of power will benefit while the poor who stand to lose P80 billion [$1,808,931,599 at an exchange rate of $1=P44.225] for programs funded by VAT will suffer.)

However, government data belie her claim that the rich pay 84 to 90 percent of the VAT.

Power

Electrical engineer Ramon Ramirez, spokesperson of People Opposed to Warrantless Electricity Rates (Power) and convenor of Agham (Science and Technology for the People) said, “It is not the well-to-do but the majority of the people, which includes the poor, who pay 90 percent of the VAT on power, directly and indirectly.”

Data from the Department of Energy (link – http://www.doe.gov.ph/EP/Powerstat.htm ) show that in 2007, electricity sales by sectors were as follows:

pie graph

Ramirez said that while the industrial and commercial sectors consumed 62.4 percent of the electricity, the companies promptly passed on the VAT on power to the buyers of their products and services — the consumers, which include the poor and the vast majority of the people.
He maintained, “Thus, the consumers themselves, not the owners of the companies, ultimately paid the VAT on power.”

Ramirez said that the 3.4 percent consumed by street lighting, public buildings and the like and the VAT paid for them came from the people’s taxes. “Therefore, the VAT on the total of the three items, 66 percent, was paid indirectly by the people, not the rich,” he said.

Analyzing the data from Meralco’s latest breakdown of residential consumers, Ramirez said that the well-to-do who are presumably consuming more than 500 kilowatt-hour per month consumed only 28 percent of the total power delivered to homes, or 28 percent of the 34.11 percent in residential sales. This amounts to a mere 9.55 percent of the total power consumed.

Ramirez said that this means that relative to the nationwide power consumption in the DOE data, only about 10 percent of the VAT on power were paid for by the well-to-do and the rich.

Oil

Based on various government data, millions of poor people who directly consume petroleum products pay millions of VAT daily.

Daily, hundreds of thousands of jeepney drivers pay P67.95 million ($1,536,527 at an exchange rate of $1=P44.225) in VAT and tricycle drivers, P14.12 million ($319,292), for the fuel they consume. Thousands of fishermen using motorized bancas pay a total of P8.85 million ($200,113) in VAT per fishing trip.

More than nine million kerosene users pay P218.32 million ($4,936,673) for VAT per month. Kerosene is used primarily by the poor for cooking and lighting.

Estimated VAT Paid Daily/Monthly by Consumers of Petroleum Products

Ave. cost

Jan-July 2008

VAT

No. of direct consumers

Average

consumption

Total VAT Paid

Daily/Monthly

Diesel – P44.23/liter

P5.31

426, 572 jeepney drivers

30 liters/day

P67, 952, 920

Gas – P50.55/liter

P6.07

581,578 tricycle drivers

4 liters/day

P14, 120, 714

P6.07

177,000 fishermen with bancas

7.5 L /fishing trip

P8,057, 925

11-kg cylinder LPG – P587.57

P70.51

8.6 million households

1 tank/month

P606, 386,000

Kerosene –

P46.15/liter *

P5.53

9.4 million

households

4.2 L/month

P218, 324,400.00

* As of May 2008 only

Source of basic data: Oil Price Watch Department of Energy <http://www.doe.gov.ph/OPM/Oilmonitor.htm > , Land Transportation Office 2007 report, National Statistics Office 2004 Household Energy Consumption Survey, Piston, Pamalakaya

Based on the above data covering the period January to July 2008, the poor directly paid around P20.55 billion ($464,669,304) in VAT.

Estimated VAT Paid Directly by Poor Consumers, January to July 2008

Estimated Total VAT Paid

Jeepney drivers

P14,270,113,116

Tricycle drivers

P 2,965,349,906

Fishermen

P1,692,164,250

Kerosene users

P 1,528,270,800

TOTAL

P20,555,898,122

Added to this, taxpayers, including minimum wage earners, also pay for the oil consumption of government offices and government-owned and-controlled corporations (GOCCs).

Data from the Commission on Audit’s (COA) 2006 Annual Financial Report of the National Government show that the government spent P2.82 billion ($63,764,838) for gasoline, oil and other lubricants expenses.

The COA report shows that the top spenders of gasoline, oil and lubricants were the Department of National Defense and the Department of Interior and Local Government with P83 million ($3,670,675,000) and P63 million ($2,786,175,000), respectively.

The average retail price of gasoline then was P39.41 ($0.89) per liter and diesel, P34.46 ($0.779) per liter. Assuming that the consumption is constant, the 28 percent increase in the prices of petroleum products from 2006 to 2008 would mean that the government would spend P3.61 billion ($81,628,038) for the same items this year. From this amount, the 12 percent VAT shouldered by the taxpayers would be P379 million ($8,569,813).

Based on the Projected Oil Demand by Sector taken from the Philippine Energy Plan of 2006, below is the projected oil consumption in 2007:

A.1.2a Projected Oil Demand By Sector.xls


barrels in millions

Percentage

Power Generation

12.389

10.7

Residential

11.292

9.7

Transport

66.487

57.2

Industrial

17.212

14.8

Commercial

5.986

5.2

Agriculture

2.861

2.5

Total

116.227

100.0

Based on the above data, Ramirez noted that excluding the transport sector, the public pays 42.8 percent of the VAT on oil. He explained that the VAT on power generation is passed on to consumers as part of the generation charge. Ramirez said that factory owners and businessmen who comprise the industrial and commercial sectors also pass on the VAT to consumers. Oil consumption by residential and agriculture sectors is also paid for by the public.

Considering that the rich pays for only 10 percent of the total consumption of electricity, it may be concluded that they would shoulder only 10 percent of the oil consumption for power generation and of residences. And while the rich shares in paying for the oil consumption of industrial and commercial establishments as consumers, it is highly improbable that they, who constitute only around 5 to 10 percent of the population, would consume 84 percent of the products of commercial establishments even as they corner 35.9 percent of the total income.

Ramirez said, “This data alone already refutes Arroyo’s claim of 84 percent share by the rich.”

The breakdown of the projected oil consumption of the transport sector, which constitutes 57.2 percent of the total is as follows:

Cars

751,092

13.6%

Utility vehicles (UV)

1,602,619

29.0%

Sports utility vehicles (SUV)

192,991

3.5%

Truck

281,261

5.1%

Buses

30,159

0.5%

Motorcycles and tricycles (MC/TC)

2,647,574

47.9%

Trailer

24,356

0.4%

TOTAL:

5,530,052

100%

Source: Land Transportation Office (LTO) statistics

Ramirez said that of the above, the VAT on oil used by trucks, buses, trailers, tricycles is eventually and indirectly paid for by the public, since these are passed on to them as matter of business operating practice.

In 2001, the LTO statistics show that the government owns 4,089 cars and 1,255 sports utility vehicles (SUVs). This means that private car owners comprise less than 16 percent of the transport sector.

Thus, the estimated share of the rich in the VAT on oil is only 9.15 percent. In other words, 90.85 percent of the public directly and indirectly pays for the VAT on oil.

Shortchanged

In a separate statement, the Bagong Alyansang Makabayan (Bayan or New Patriotic Alliance) revealed that the national government may have collected as much as P1.8 billion ($40,700,966) in VAT from Meralco’s lifeline customers alone. The amount, according to Bayan, is P1 billion pesos ($22,611,644) more than the actual subsidy given.

Lifeline users are those consuming 100 kilowatt hour or less per month. The government gave a one-time P500 ($11.30) power subsidy for lifeline customers last month. For 1.7 million Meralco lifeline customers, the government spent P852 million ($19,265,121) for the one-time subsidies, Bayan said.

In her SONA, however, Arroyo said her government allocated P2 billion ($45,223,289) as power subsidy for four million poor Filipinos.

Bayan estimated that for 32 months, 50kWh-consumers paid a total of P470 ($10.627) each in VAT; 70kWh paid a total of P970 ($21.93); and those who consume 100kWh paid a total of P1,830 ($41.379) each in VAT.

Ramirez said, “Only a fraction of the collected VAT is doled out to the poor as subsidies under the signboard “Katas ng VAT para sa mahirap.” (VAT Revenues for the Poor)

In a statement, independent think tank IBON Foundation said that so far, only P9.3 billion ($210,288,298) or just half of the estimated P18.6 billion ($420,576,596) in windfall RVAT revenues is going to subsidies. This leaves another P9.3 billion ($210,288,298) unaccounted for inasmuch as another P2 billion ($45,289,223) in “subsidies” that had been hyped are merely loans that still have to be repaid.

It added that the administration’s “Katas ng VAT” is “a pretense to cover up how the largest part of reformed value-added tax (RVAT) revenues do not go to social programs but rather to paying off debt, militarism and political patronage to prop up Arroyo’s unprecedented unpopular rule.”

The independent think tank also criticized the Arroyo government for making it appear that the share going to social programs is larger than reality. IBON cited the Department of Finance report in 2006 stating that 30 percent or P23.5 billion ($531,373,657) of additional RVAT revenues went to social and infrastructure expenditures. However, the actual amount that went to social services was just P8.4 billion ($189,937,817) or only 11 percent of RVAT revenues.

IBON said further, “In contrast, the administration still insists, in the face of the people’s worsening problems, on allotting some 24 percent of the national budget to interest payments on debt.”

The government is paying P634 billion ($14,335,782,928) in total debt service in 2008 covering interest and principal payments.

Correct math

IBON said that the so-called pro-poor subsidies also do not have any lasting effect for the people who suffer record joblessness, rising prices and worsening poverty.

Ramirez asserted, “Correct math on hard data tells us that the people are better helped by removing the VAT on oil and power, and with the bonus that they have their dignity intact.” Bulatlat

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