SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones looks at the government’s claims that only the upper classes would benefit from the suspension of excise taxes on diesel and gasoline.
Removing the excise tax is not just for ‘the rich’
Over the past fortnight the price of diesel, in particular, reached triple digits again, a reminder that volatility in the international oil market continues as the United States continues to wage its frankly pointless and futile war against Iran, further complicating already complex geopolitical conditions in the Middle East. And while pump prices have gone back down since – a liter of diesel is at roughly PHP 93 as I write this, and another small rollback is imminent tomorrow – it has highlighted the long-term effects of the crisis on transportation in the country, both moving people and goods.
On one hand, the government has finally allowed a fare upward adjustment that was supposed to go online last March, but was put on hold ostensibly to ease the burden of commuters while providing support for drivers in other ways, such as fuel subsidies. Yet the delay has already caused damage; the fare rise was greeted with a transport strike from some groups who say it is no longer enough to cover for the losses they’ve had to shoulder over the last few months.
The government also suspended, once again, the imposition of an excise tax on kerosene and LPG, which stakeholders have argued would not be enough, considering any potential price cuts would be offset by expected increases in per-liter costs due to increasing global demand around this time of the year. When it comes to excise tax on gasoline and diesel, though, the government’s line remains the same: no suspension for those. Finance secretary Frederick Go is adamant that any such suspension on those products would only benefit the rich, those who are likely to own motor vehicles. He also cites the roughly PHP 12 billion in revenue that would be lost if the aforementioned taxes – roughly PHP 6 per liter of diesel, and PHP 10 per liter of gasoline – is suspended or removed altogether.
But it’s wrong to say that removing the excise tax on diesel and gasoline would only benefit the rich. This is a classic case of mistaking a handful of trees for the entire forest. This is deliberately missing the whole picture to present a preferred justification. It has been obvious how higher fuel costs have contributed to overall inflation in the Philippines in the past few months, especially as fuel is a major component of the transport of every and all sorts of goods – rice, meat, fish, vegetables, processed goods, virtually everything that we buy with our hard-earned money.
Let me repeat some figures. 25% of our total cost of sales goes to logistics costs. Of that 25%, roughly 60% is spent on fuel costs. To put it simply, for every PHP 1000 we spend on our weekly groceries, PHP 150 of that goes to the cost of fuel used to deliver goods at every stage of production – raw materials to production facilities; finished goods to distribution centers, and on to store shelves. Everyone pays that PHP 150, regardless of whether they have a car or not.
And diesel and gasoline is not only used for the transportation of people and goods. We know that diesel powers some of the equipment used across manufacturing and agriculture. In some cases, diesel is used to generate electricity for communities – recall the constant power outages in Siquijor due to aging diesel-run generators that led to a declaration of a state of calamity there last year.
Suspending the excise tax on diesel and gasoline, whether temporarily or permanently, would have massive ripple effects on the cost of living in the country – and this will be most felt by the lower classes, to whom inflation is actually as high as 8%, according to data from the Philippine Statistics Authority. It is disingenuous to say that, just because the most obvious beneficiaries of such a cut would be to vehicle owners, who likely come from the middle and upper classes, we can’t do anything that would be unfair to the lower classes. True, the excise tax on diesel and gasoline is part of a supposedly progressive tax regime where those that have more contribute more – but the maths simply don’t add up when you consider the entire economy.
But I understand that losing PHP 12 billion in revenue is an impossible prospect, especially when the government needs resources to provide other forms of support to those more heavily affected by this ongoing crisis. Also, any changes – whether short-term adjustments or long-term realignments – would not lead to instant benefits. Just ask us in the private sector, who are still adjusting to higher fuel prices by adopting co-loading and shifting to electric vehicles. The benefits are not instant. We know it’s the same for government. I suppose if it takes seriously the World Bank’s recent recommendations on procurement reform – which it claims could provide the country PHP 435 billion in additional revenue without raising a single tax – it would still take a long time. But only if it’s serious. It’s been over a year since those cans of flood control worms were reopened. What’s happened since? A gloomy Christmas for us. It’s something we could expect to see again this December.