Coal tax draws mixed reaction

Businessmen and consumers are concerned about higher power costs due to the increase in the tax on coal under the Tax Reform for Acceleration and Inclusion Act (TRAIN) Bill, the government insists it is legal while one sector sees this as a means for the Philippines to comply with its global commitment in the Paris climate deal.

A consumer group has already called for the President to veto the coal tax portion of the bill because of its cost repercussion on electricity, while a business group has urged government to avoid any measure that would raise the cost of power.

As part of the TRAIN bill, the Senate’s Bicameral Conference Committee approved the increase in excise tax hike on coal from R10 per ton to R50 in 2018, R100 in 2019, and R150 in 2020.

Reacting to the coal tax, Philippine Chamber of Commerce and Industry (PCCI) said that being already poorly situated in terms of power costs competitiveness, it is important for the Philippines to give priority the prevention or avoidance of any cause that will increase the cost and diminish the quality of the power industry.

Consumer advocacy group, Laban Konsyumer, Inc. (LKI) has also expressed an urgent appeal for President Rodrigo Duterte to exercise his power to veto the high excise tax, warning this would have “serious impact” on consumers’ welfare.

In a statement, LKI President and former Department of Trade and Industry (DTI) Undersecretary Atty. Vic Dimagiba said: “We oppose the excise tax on coal since it violates the Constitution, and the possible spike in electricity rates that will put additional burden to every household.”

LKI estimates that at R50/MT, the increased coal tax will multiply spending of industries and consumers as an indirect impact.

“I think there will be a belt-tightening. Consumers can be smart by using their right to choose what they buy,” Dimagiba said during a radio program interview.

Aside from the impending increase in electricity rates, prices of cement will also be affected by the reform on coal tax “Because cement manufacturers use coal to burn their kiln and also as the share of their power. We project that up to 9 pesos will be added from the current price of each sack of cement once the bill is passed.”

LKI stated that at R150/MT, smallto-medium businesses will be burdened with additional expenses.

According to the group, larger businesses that compete in the global economy will also be affected. At R150/ MT coal tax, large local semiconductor companies will still be rendered less competitive, with their bills going up.

Office buildings hosting BPOs will be similarly affected, with electric expenses going up. Local food manufacturers and retailers will likewise see power bills go up, translating to more expensive food/ beverages and services.

The coal tax’s inclusion to TRAIN came as a total surprise as it was not included in the House version of the tax reform package.

The Department of Finance has clarified that locally produced coal will remain exempted from value-added tax (VAT) but will be subject to excise levy.

Finance Secretary Carlos G. Dominguez said that what Congress decided during the bicameral conference committee meetings is to keep the 12 percent VAT exception being enjoyed by all coal mines in the Philippines.

“We had extensive discussion on that with them. Well, what is already passed by both Houses [of Congress]—in the version that was ratified by both houses – the VAT on domestic coal production is exempt,” Dominguez said.

But the finance chief said that beginning January next year, all coal producers, both local and foreign, will have to pay excise taxes to the government.

Asked if the insertion of the coal tax could pose a legal question later on as this provision did not originate from the lower House, Dominguez said the levy is not considered a new tax, saying the Bicam only adjusted the three-decade old coal tax rate.

“That issue was never brought up and besides it’s not a new tax. Coal is currently taxed at R10 per metric ton so it is actually only adjustment of a tax already existing,” Dominguez said. Meanwhile, Renato Redentor Constantino, Executive Director of Institute for Climate and Sustainable Cities, described the carbon tax as a “corrective initiative.”

“The ultimate goal must be an energy-secure economy that is more efficiently and more reliably powered by clean energy. Keeping to the Paris Agreement is a co-benefit that will be achieved as a result,” Constantino said.

Despite the cynicism he earlier expressed about the deal, President Rodrigo Duterte has signed the Paris Agreement on Climate Change, which was drafted during the United Nations Climate Change Conference (COP 21) in 2015.

Chiming in the issue, Department of Energy (DOE) Secretary Alfonso Cusi said it will draft a formal position on the additional excise tax for coal.

Still, the popular stand is to stop such measure because it will eventually translate to higher power cost in the country.

Constantino, however, said that four decades of being virtually free from taxes has made coal artificially cheap and that the additional tax on it will help correct market outcomes.

“Coal subsidies are staggering and now the dominance of coal has begun to erode,” he said.

“The coal tax also sends a strong policy signal to all investors. The Duterte government is set to transition to more affordable, more reliable and certainly truly cleaner energy. It means more jobs and a more modern economy and a future defined by real competition. The public wins,” he further said.

Constantino even said that D.M. Consunji, Inc. (DMCI) “made a colossal mistake” in lobbying for local coal to be exempted from the extra tax.

“They revealed their hand and made themselves into a national target. They merely slowed down their decline and their losses will be even bigger as the public trains its ire on the skullduggery of the local coal industry,” Constanino said.

DMCI currently owns the majority of Semirara Mining and Power Corp., the country’s largest coal miner as it accounts for 80 percent of total production output.