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







Malacanang consistently refuses to repeal the reformed value-added tax (RVAT) on oil and power saying that it will harm the country’s revenues. But according to independent think-tank IBON Foundation, there are measures that government can implement which are less burdensome and can generate more revenues than the RVAT.

These measures include improving revenue performance, which according to the National Tax Research Center, could earn the government an average of P57 billion annually in uncollected VAT on items other than petroleum products and P82 billion in uncollected corporate taxes as of 2006.

If government increases its tax collection efforts from 14% of the gross domestic product to 16%, this can produce at least P94 billion in a year. These revenues are more than enough to cover the revenue losses from the removal of VAT on oil and power.

Removing the RVAT on oil and power will also help mitigate the significant supply-side pressure on inflation due to high global oil prices and may decrease the inflation rate by 0.5-0.8 percentage points, especially since global oil prices are expected to continue increasing at least through 2008, with improvement only in 2009.

Raising revenues through a regressive VAT is convenient only for the government, which amid the spiraling cost of basic goods and services, should implement revenue-generation measures that do not unduly burden the poor Filipino majority– which is unfortunately what the regressive VAT does


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.


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.