By imposing tariff cut recently, the cash-strapped Arroyo government has not only failed to address high pump prices but defaulted on its responsibility to collect revenues, all in favor of the oil companies.

Government had already imposed tariff reductions in the wake of high prices through Executive Order (EO) 527. The automatic tariff mechanism imposed under the EO may be viewed as a compromise after government removed VAT exemptions on petroleum products. The VAT on petroleum products has since become one of the largest sources of revenue for the cash-strapped Arroyo government.

Under EO 527, the current oil tariff scheme of 3% would be lowered to 2% up to 0% based on certain triggers indexed to oil prices in the world market. The expectation was that the tariff cut would soften the impact of global oil prices on the economy. Under the EO, government had reduced the tariff on oil products at least twice, but the move has not had the desired effect. Instead of addressing high oil prices, it only delayed price hikes on diesel by several days while easing the tax burdens of the oil companies.

“By choosing to remove tariffs on oil imports as a solution to high oil prices, government is protecting the interests of the oil firms at the expense of potential revenues that should be used to fund vital social services such as health and education,” said IBON executive editor Rosario Bella Guzman.

A more effective solution to the problem of high oil prices would be the lifting of VAT on oil products, she said. But the only permanent solution to high oil prices is nationalization of the local oil industry, starting with the repeal of the oil deregulation law. “The oil industry is vital to the country’s economic development, and as such should be regulated by government,” said Guzman.


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