MAR ROXAS: "SUSPEND VAT ON OIL PRODUCTS"

Senator Mar Roxas, an economist knows what he is talking. He is moving for the suspension of the Value Added Tax (VAT) on oil products to cushion the impact on the Philippine economy the increase of price of crude oil.

Here's a transcript of Senator Mar Roxas' January 10,2008 interview on ANC's 'Dateline' on the Palace's nixing of Sen. Roxas' proposal to suspend VAT on oil products:

Q: The President is lowering tariffs on oil importation, which will lead to a 50-centavo reduction per liter in fuel prices and P11 billion in foregone revenue. What do you think of that?

MAR: Not enough, inadequate, tokenism. The government has to get ahead of the curve. Oil prices have reached $100 a barrel at the New York Mercantile Exchange. All the analysts say that this will be the new band or the new area where oil prices are going to be. The time of $30-$20 oil is going to be long gone already. This is the new reality we have, and this tariff cut is simply not gonna make it. Admittedly it's a good start, and when Congress is not in session, this is all the executive can do, adjusting tariffs. But I would say, let's change the law. I've been saying this for some time now. Let's take the VAT away from petroleum products.

Q: How does your proposal translate in savings?

MAR: In the present oil prices, a reduction of 12% VAT would translate to P4 per liter for diesel or more than P60 for an 11-kilo LPG tank. So these are huge savings, it's enough scale to actually modify consumer behavior, to actually have an impact in the broader economy. Second, government will not actually lose this. Whatever you save in a 40-liter tank, that's P160, when you go out and buy Jollibee or McDonald's or something, there's a VAT on that right away. So government will also catch it, in the next go-around. They will capture it. The point is, the government is being lazy about it. They only want to talk to three oil companies, when they should be collecting this from every store and enterprise that sells to the people. This is going to have a cash-flow impact, rather than a real collection impact.The price of diesel right now is P38.50 per liter, the VAT component of that is P4. It becomes P34, with P4 straightaway saved. With LPG, it's almost P65 per tank. There's going to be real savings for the people, and they will also spend. And with that point of view, it's not going to be a loss to the government.

Q: Are you concerned that the savings won't actually happen because the oil companies will say they have underrecoveries and find some reason not to lower prices?

MAR: No, because the VAT is on top of whatever their pricing is. Whatever their pricing is, the VAT is automatically removed from that.

Q: And if they fiddle around with it, that could be checked?

MAR: That's right. More importantly, the earlier news said oil companies were looking at another P3 of uncaptured increases yet, meaning the inventory levels that are being reflected by the pump prices today are based on $85/barrel oil. Oil is now in the $90s range, and the companies might have another P3-P4 of unpassed-on increases. So 50 centavos is not going to be much. That's not going to substantially change the quality of life of a housewife, of a driver, of someone in the transport sector, anybody delivering eggs, vegetables, fish or manufactured products.Oil is one of those things that are present in nearly every product, either because of the transport or the raw material - plastics really come from oil as well. The point is, by taking out the oil VAT component in pricing, you'll be able to help the entire economy across the board without the government really suffering because all of the savings of the consumer will be captured subsequently.