Report says government should use VAT on oil to improve infra

The government should use the revenues generated from the value-added tax (VAT) on oil to improve national infrastructure, boost capital spending and social aid for the poor to help them cope with skyrocketing fuel prices, according to a recent report by the House of Representatives Oversight Committee.

 In its assessment report on government performance in the 4th year of the Arroyo Presidency entitled “Staying the Course,” the committee recognized the clamor by various sectors to repeal the VAT given the current state on the economy and the effect of the VAT on oil and food prices.

“These amounts could be used by the government to further improve the national infrastructure, infuse the market with capital, and provide an enhanced social welfare system that would be beneficial for those highly affected by the rising prices of food and oil,” the committee said.

However, the committee echoed the position of the government that a repeal of the VAT on oil would be more detrimental to the economy.

“While the repeal of the RVAT or the removal of the VAT on oil may reduce the price of certain commodities and services, its net impact on the economy and the government’s fiscal stability should be analyzed before such a drastic measure is made,” it said in the report.

Citing data from the Department of Finance (DOT), the Congressional committee noted that collection for VAT has greatly contributed to the revenue performance of the government.

“Should the VAT on crude and other petroleum products be lifted this year, the government will stand to lose an estimated P73.08 billion in revenues. However, if the VAT on oil is not lifted, out of the P73.08 billion expected revenue, there will be an P18.57-billion windfall revenue by the end of 2008,” it said.

Antique Rep. Exequiel Javier, chairman of the House ways and means committee, earlier proposed to replace the VAT on oil with a specific tax.

The specific tax on oil will be based on volume of oil. As such, the tax will be fixed despite increases and decreases in the price level of oil.

Under the proposed measure, the price of oil by which the tax will be based will be fixed at $103.50 per barrel.

With this cap, the amount of VAT on oil is converted to specific tax. This means that any increase in the price of oil beyond $103 per barrel will no longer be taxed.