New year, new tax (part III)
FOR the past two weeks, we have closely looked at the TRAIN (Tax Reform for Acceleration and INclusion) Law which was signed by President Duterte before 2017 ended. Part I tackled the reaction of the common tao on this new law, while part II focused on the tax on sugary drinks. There are still many aspects of this law that need more focus. A more contentious issue is on the imposition of excise tax on fuel.
Last Tuesday, Atty. Ernesto Perez of the Consumer Protection Group of the Department of Trade and Industry appeared in a morning show, and attempted to explain the effects of the new taxes to the products sold in the market. He claimed that the excise tax imposed on fuel will represent only a minimal increase in the prices of commodities in the market, amounting to P 0.08 – P 0.11 only. The host asked Atty. Perez if the increase of the price should only amount that much then why is it not reflecting on the prices of goods in markets in Metro Manila. The morning show has a segment that monitors prices of goods in various markets in the metropolis. The lawyer denied these allegations saying that DTI makes regular rounds in various groceries and supermarkets, and the prices of prime commodities are within their ideal price range.
One more question that the host asked was regarding those in the informal sector, who will feel the most the adverse effect of the excise and value-added taxes imposed by the TRAIN Law as they will still buy goods, now with higher prices, but their income will not change. Those from this sector, particularly the farmers, fishermen, etc., have not been paying income taxes in the past mainly because their income do not reach the taxable threshold, and most likely, their income would not make a significant change now. His reaction was totally unexpected, even by the host doing the interview. He questioned why were these people from the informal sector not paying taxes before. They should pay taxes if that’s the case, to which the host sarcastically remarked that with his line of questioning may have brought those from informal sector into trouble.
I will not waste any more space in this column to highlight the incompetence of that lawyer who appeared on national TV. There are several issues that emerged from this pointless interview.
The first issue is on the effect of the imposition of excise tax on fuel products. Theoretically, taxation is used by the government to discourage the consumption and production of demerit goods (goods that do not benefit the consumer). If this is the case, then why is fuel taxed in this new law?
The most used type of fuel here in the Philippines is diesel, which is also the cheapest. This is considered as the least refined fuel, and vehicles using it emit the highest volume of pollutants into the air. This move of taxing fuel, particularly diesel, will decrease the supply in the market and would therefore result to an increase the (equilibrium) price of fuel. This increase in price would discourage the consumption of diesel, and in effect, lessen vehicles’ emissions. I would like to believe this could be a precursor of the earlier pronouncement of the President particularly on phasing out public utility jeepneys (PUJs) and removing them from the country’s thoroughfares, and replacing them with more fuel-efficient substitutes.
There are also many manufacturing firms in the country that are still using fuel for their machineries. Therefore, an increase in the price of fuel will bring about an increase in their overhead costs as well. Therefore, the increase in the price of fuel will bring about a domino effect and finally affecting the price of final goods. Since additional costs are incurred, these will be accounted for in the pricing of the goods, resulting to an increase in the selling prices of goods, which could be inflationary in nature. (Inflation