As inflation in the country rose to its highest in nearly 17 years, independent think-tank IBON Foundation says that while unavoidable, inflation could have been moderated if government had not insisted on taxing the people through the oil value-added tax (VAT).

The National Statistics Office reported that high fuel costs drove the inflation rate to a 12.5% high in August. According to IBON, the removal of VAT on oil would have immediately brought down the cost of fuel prices by 12 percent. Pump prices are estimated to go down by P4 a liter and liquefied petroleum gas (LPG) by P60 per 11-kg cylinder without the VAT on oil. These could have brought immediate relief to millions of Filipinos through savings on their fuel bills, while bringing down production costs of fuel-intensive establishments.

High prices of commodities could also have been mitigated if government had not surrendered control over the oil industry by maintaining oil deregulation.

Inflation bears most heavily on the poor who already struggle with record joblessness and falling incomes. But government continues to implement the VAT in its obsession to reduce the budget deficit and continue servicing its public debt. For the people, however, all these have only meant higher prices and drastic cuts in income, consumption and welfare.



While Pres. Arroyo stood firm in her State of the Nation Address against abolishing the value-added tax (VAT) because it will sacrifice funds for social programs, majority of Metro Manila residents believe that revenues from VAT do not go to social services.

According to the special survey conducted by IBON Foundation, 65% of National Capital Region (NCR) residents do not believe that the revenues from VAT are being spent for social services and other needs of people. Meanwhile, 27% said they believe the revenues are going to social services while 7.8% answered don’t know.

Various people’s groups and lawmakers, including the Catholic Bishops’ Conference of the Philippines, have been demanding for the removal of the regressive VAT.

Below is the tabulation of results of people’s perception on the value-added tax and social services.

Do you believe that VAT revenues are going to social services spending and other needs of the people?







Don’t Know







In spite of aggressive government efforts to justify the 12% value added tax (VAT) on oil, almost nine out of 10 Metro Manila residents still feel that the said tax must be scrapped.

In a metro-wide survey conducted by IBON Foundation on July 12-13, 87.33% of respondents agree with the proposals to scrap the VAT on petroleum products.

President Gloria Macapagal-Arroyo is expected to highlight the supposed benefits of the people from government’s growing collections from the VAT in her State of the Nation Address (SONA) on Monday.

Various groups have been calling for the cancellation of the VAT on oil in the face of escalating pump prices with several legislative proposals implementing the said measure currently pending in the House of Representatives and the Senate.

The Catholic Bishops Conference of the Philippines (CBCP) has also called for at least a review of the oil VAT. Estimates show that at current price levels, removing the controversial tax can reduce pump prices by more than P7 per liter.

IBON’s special survey was conducted across NCR and has a margin of error of plus of minus three percent.

Below is the tabulation of results of the respondents’ perception on the removal of the  value-added tax on petroleum products.

Do you agree with the proposals to remove the VAT on petroleum products?
Yes 324 87.33
No 31 8.36
Don’t Know 16 4.31
371 100.00


Lifting the reformed value-added tax (RVAT) on oil would deliver more direct and indirect benefits to millions of poor Filipinos through lower prices, according to independent think-tank IBON Foundation.

IBON research head Sonny Africa said that removing the RVAT on oil products would result in lower prices that would immediately benefit nearly one million jeepney and tricycle drivers and their families, as well as almost nine million households using liquefied petroleum gas (LPG). Also gaining will be at least three to four million farmers and fishermen and their families paying for irrigation or fuel for fishing boats. He added that other sectors would also indirectly gain as the effect on inflation caused by skyrocketing oil prices would be moderated.

Africa pointed out that the government subsidies funded by VAT earnings do not reach this many people in as sustained a manner. Africa pointed out that VAT earnings are barely used to subsidize pro-poor projects as P6 for every P10 immediately go to servicing the burgeoning debt.

The bottom line is that the VAT, no matter how small the government says the burden is, is anti-poor and already unbearable, Africa said.

If government needs additional revenues, there are other sources that will not unduly burden the poor, Africa said.  These include a genuine and sustained crackdown on corruption which underpins some P140 billion in VAT and income tax evasion annually, reversal of trade liberalization resulting in foregone tariffs of some P100 billion every year, and higher taxes on corporate incomes and luxury goods.

The difficult economic times also underscore the urgency of cutting back on debt service and strengthen arguments for stopping automatic appropriations for debt payments. There could be around P130 billion in savings if even just 20% of total debt payments of P634 billion in 2008 are suspended, Africa said.


Yet gov’t continues to implement RVAT

Since the oil deregulation law was first implemented, much of the of the oil price increases happened under the Arroyo administration, and this is not only because of the length of the president’s term but because of her continued implementation of the oil deregulation law amid public outcry, and her imposition of the reformed value-added tax (RVAT) on oil.

Oil price increases under Pres. Arroyo’s term comprise almost 42% of total increases since the first oil deregulation law in 1996.

The Arroyo administration has done little to avert rising prices of petroleum products. Since Pres. Arroyo became president, the price of premium gasoline has increased by 147%, while that of unleaded gasoline has jumped by 151 percent. Regular gasoline has increased its price by 150 percent.

Socially-sensitive oil products, meanwhile, have posted sharper increases. The price of diesel grew by 168% while that of kerosene jumped by 196 percent.

With the unrelenting oil price increases, independent think-tank IBON calls for the immediate removal of the 12% VAT on oil to mitigate the effects of skyrocketing prices on poor Filipinos.

From 2005 when the Arroyo government imposed the value-added tax on petroleum products, gasoline products have increased their price by 20 percent. Diesel and kerosene prices have increased by 17% and 19%, respectively. LPG posted the sharpest increase in price since the VAT was imposed with a 36%-hike. Fuel oil, on the other hand, has increased its price by 31 percent.

“Removing the 12% VAT on oil is urgent because of falling incomes of Filipino families, and rising prices of basic goods like rice and utility rates such as electricity,” said IBON executive editor Rosario Bella Guzman.

Removing the VAT on oil, she added, would stimulate economic activity through savings by consumers on their fuel bills, while lowering operating costs of fuel-intensive business establishments.

However, a long-term solution to the uncontainable price increases of oil is the repeal of Republic Act (RA) 8479 or the Downstream Oil Industry Deregulation Act of 1998.

“Unfortunately the Arroyo government, under whose watch oil price hikes soared tremendously, continues to implement this flawed law,” Guzman said.


In the wake of a new wave of price hikes of petroleum products and basic goods, the removal of the 12% value-added tax (VAT) on oil products is urgent in order to give immediate relief to millions of poor Filipinos, according to independent think-tank IBON Foundation.

IBON executive editor Rosario Bella Guzman pointed out that the recent round of oil price hikes is more than enough reason to remove the VAT on oil products, particularly in the wake of the recently released official poverty figures showing that the number of poor Filipinos is increasing.

It has been estimated that if the 12% VAT on oil products were removed, pump prices could go down by P4 a liter and liquefied petroleum gas (LPG) by P60 per 11-kg cylinder. “These could help the millions of poor Filipinos through savings on their fuel bills,” Guzman pointed out. “Fuel-intensive local establishments would also benefit through lower production costs.”

In 2006, the government earned P49.15 billion from VAT on crude and petroleum products. This could easily be offset through revenue measures that are less burdensome to Filipinos, such as plugging tax leakages. In 2006, government lost P82 billion in uncollected corporate income taxes and an average of P57 billion annually in uncollected VAT.

“In the wake of the worsening poverty problem, such measures that would give the quickest relief to a greater number of Filipinos are important,” said Guzman.


The public is facing higher cost of living and more eroded wages and income this year as oil prices continue to spiral, according to independent think-tank IBON Foundation.

Jeepney drivers, for instance, will have to work doubly hard to earn a decent income for their families with unabated diesel price hikes. Last year alone, a jeepney driver’s daily expense for diesel increased by P147.30 as the prevailing pump price of diesel jumped by P4.91 per liter between January and November 2007. (Based on transport group Piston’s estimate that a jeepney driver consumes an average of 30 liters of diesel per day)

Diesel costs jeepney drivers around P1,125.90 per day and has to hand over between P600 to P900 (depending on the unit’s seating capacity) as daily “boundary” to the jeepney owner or operator. This means that he can only start earning for his family if he has already made P1,725.90 to P2,025.90 to cover for the diesel cost and the operator’s share.

Ordinary households, meanwhile, are spending P76.94 more for a regular LPG tank (11-kg cylinder) as the prevailing price of LPG jumped by P3.91 per liter between January and November 2007. Again, this further undermines the budgets of most Filipino families who also face higher water and electricity monthly bills as well as increased prices of basic goods.

IBON welcomes the proposal of several senators to suspend the 12-percent value added tax (VAT) on petroleum products because this will offer a temporary respite for the public. Diesel pump price, for example, could immediately go down by around P4.50 per liter without the VAT.

However, the situation calls for drastic but doable measures that are more effective and stable such as the permanent lifting of the VAT on oil products and the immediate repeal of Republic Act 8479 or the Oil Deregulation Law.

IBON will present its assessment of the economic and political situation at the Yearend Birdtalk on January 14, 1 p.m. at the UP Balay Kalinaw, Diliman, Quezon City.