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Senators eye lowering, suspending 12% fuel VAT
MANILA, Philippines — He’s still not calling the situation a crisis, but President Marcos declared yesterday a “state of national energy emergency” as fuel prices continue to soar and as supply nears depletion.
Through Executive Order 110, the President also ordered the adoption of a whole-of-government approach to easing the burden of affected sectors under a Unified Package for Livelihoods, Industry, Food and Transport or UPLIFT.
It is the first time that a president exercised such authority to respond to oil supply disruptions under Republic Act 7638, which authorizes the President to declare a critically low energy supply and implement energy allocation.
With the suspension of fuel excise taxes already in motion, senators, meanwhile, are eyeing the reduction or suspension of the 12-percent value-added tax (VAT) on petroleum products as further relief for consumers battered by the Middle East crisis.
In issuing EO 110, Marcos said the US-Israel war on Iran that forced the closure of the Strait of Hormuz has triggered “uncertainty in global energy markets, severe disruption in supply chains and significant volatility and upward pressure on international oil prices, thereby posing a threat to the country’s energy security.”
As a net importer of oil products, the Philippines is vulnerable to disruptions in global oil production and transportation, according to Marcos. In the EO, the President cited a recommendation from Energy Secretary Sharon Garin that measures like fuel and energy allocation have to be taken, as current circumstances “pose an imminent danger of a critically low energy supply.”
The President will chair the UPLIFT, with the secretaries of energy, transportation, social welfare, agriculture, finance, budget and economy, planning and development.
Earlier, Sen. Bam Aquino pressed energy officials on additional interventions to lower pump prices, noting that the Senate had already fast tracked the enrolled bill suspending fuel excise taxes. He pointed out that VAT accounts for a massive chunk of fuel costs.
“We’ve already talked about VAT. It is 12 percent of the price of fuel at the gas station. Is that a possibility – to also suspend VAT? Because if it’s 12 percent of P120, then it would be considerable. That’s what, P14 to P15 right away,” Aquino said in Filipino and English.
Energy Undersecretary Felix Fuentebella confirmed that discussions are underway, although they are leaning toward adjusting the tax rate rather than outright suspension due to supply chain complexities.
“It’s more of having a different rating, it’s not suspending because there’s a supply chain we have to note when we’re talking about VAT. Probably a zero rating or a lower rating for consideration of our economic managers,” Fuentebella explained.
Aquino assured the Department of Energy that the upper chamber is willing to work overtime to pass the necessary tax reforms if economic managers give them the green light.
“Let me tell you for the record that the Senate is ready to pass such reform if necessary. We will, I think... go back and have a special session if needed, if we need to do reforms on the VAT,” Aquino declared, warning that even if the Middle East conflict ends tomorrow, it will take three to six months for global pump prices to normalize.
Meanwhile, the House of Repre sentatives transmitted to the Senate House Bill (HB) 8418 authorizing the President to suspend or reduce fuel excise taxes, after it was signed by Speaker Faustino Dy III. He and Majority Leader Sandro Marcos were the principal authors of the measure.
Economic slowdown
At a hearing by the Senate ad hoc committee on the Middle East crisis, Department of Economy, Planning and Development (DepDev) Secretary Arsenio Balisacan warned about a possible economic slowdown if both excise tax and VAT on fuel are removed.
Balisacan issued the warning after Sen. Loren Legarda asked him for his opinion on senators’ proposals to suspend or reduce not just the fuel excise tax, but also the VAT on fuel.
He said reducing tax on fuel would result in lower inflation rate because of reduced costs in transportation of goods and on motorists’ travel.
But this would also result in foregone revenues as well as affect the country’s credit rating. Removing VAT, he pointed out, will have “greater impact” on Gross Domestic Product.
He said GDP growth could slow down to 3.5 to four percent in 2026 under a worst case scenario of $200 per barrel for six months.
Sen. Risa Hontiveros asked Balisacan about the “double whammy” of economic “stagflation” and inflation, and what the Senate can do to “cushion that double effect.”
Balisacan said the crisis could also result in a budget deficit and reduced government spending, resulting in a “triple whammy” impact on the domestic economy.
Defending the peso
Meanwhile, in an interview with Bloomberg News yesterday, President Marcos admitted that the government could only do so much with regard to the weakening of the peso since the US dollar is still perceived as a safe-haven asset.
“As a matter of policy, we defend the peso to a certain extent. But with the dollar moving the way it is, it’s moving whereas before it’s seen as a safe harbor currency,” Marcos said.
“The dollar’s increase in value has been because they are the largest oil producer,” he added.
Despite the weakening of its currency, the Philippines is not inclined to use all its foreign reserves to intervene in the foreign exchange market.
“I think it will be futile to spend all our foreign reserves to (defend) the peso. We will defend the peso to an extent, but we also recognize that there’s only so much you can do because the dollar’s going to move the way it does,” the President said. — Marc Jayson Cayabyab, Alexis Romero, Jose Rodel Clapano
