Higher coal excise taxes to hurt PH competitiveness

With the country’s competitiveness already at a comparatively low ranking, the proposed colossal increases in excise tax of coal will further put the manufacturing sector’s potential on a slump and will further cripple business competitiveness, according to key players in the power industry.

Essentially that excise tax hike proposal under the Tax Reform for Acceleration and Inclusion (TRAIN) Bill may also wreck even the Duterte administration’s goals of industrialization; and the policy move a manifestation of its weakness to draw investments that must underpin its infrastructure buildup plan. In the end, missteps and myopic view on policymaking may just prove more damaging for the entire country.

In the electricity sector, power utility giant Manila Electric Company (Meralco) has formally sounded off to Congress that the high coal tax will have ‘domino effect’ on the competitive potential of businesses.

In a letter to Senate Ways and Means Committee Chairman Juan Edgardo M. Angara last September, Meralco noted that based on its simulations, “any move of government towards increasing the excise tax on coal would impact significantly on electricity consumers across all sectors – residential, commercial and industrial.”

Apart from the direct cost-effect on generation charge, Meralco noted that the pass-on will similarly be integrated in the transmission and system loss charges because these components still account for a fraction of the power supply flowing through the system, such as in the ancillary services procurement of the National Grid Corporation of the Philippines.

“An increase in the excise tax on coal will also be reflected in the transmission charge and system loss charge,” Meralco emphasized.

The more paralyzing effect of that tax imposition, it was indicated, would be on industries as it may “reduce (their) competitiveness”, as they constantly go head-to-head with rival markets globally that may have been enjoying cheaper power rates.

The Meralco plea was just partly heeded because the Senate just opted for reduction in the coal excise tax hikes to the R100, R200 and R300 per metric ton (MT) ranges from what was initially proposed at R1,000 per MT. With higher tax for coal, being this economy’s main source of fuel for power generation, it was noted that Philippine electricity rates may rise highest again vis-à-vis all neighboring countries in Asia.

Referencing to the 2012-2016 period, the utility firm said consumers in its franchise area, “have enjoyed some of the largest tariff reductions worldwide due to substantial reductions in the generation charge, as well as distribution charge and system loss charge, thus, raising the excise tax on coal may take away gains from the country’s increased competitiveness.”

Meralco, in particular, sources 31.4percent of its power supply portfolio from coal-fired power plants, including that of Quezon Power Philippines Ltd. Co., Masinloc Power Partners Co. Ltd., Sem-Calaca Power Corporation, Therma Luzon, Inc., San Miguel Energy Corporation and Panay Energy Development Corporation.