UNDER THE MICROSCOPE
With the bill granting the president emergency powers regarding the energy crisis already passed, the president should not just reduce the excise tax on fuels. Rather, he should totally remove it, even temporarily, to give the people some breathing space amid the tightening fuel supply and soaring fuel prices.
He should also suspend the value-added tax, not only on fuels but on all necessities. Although VAT is levied on all purchases, its effects are far greater on those who are on the fringes (laylayan) who can barely keep body and soul together. It is a regressive tax, taking a larger percentage of income from low-income households compared to higher income households. The poverty incidence in the Philippines (those unable to buy both basic food and non-food needs) was 22.4 percent, or three million families. On the individual level, it was 15.5 percent, or 17.54 million individuals in 2023. These rates are higher in Mindanao and the Cordilleras. Those three million families reported experiencing involuntary hunger. They may not have anything to eat at all soon.
The middle-income earners are not exempt from the effects of VAT. The more you consume, the higher the amount of VAT you pay. With the oil crisis, we can expect more middle-income earners at the lower level to join the impoverished. Although the middle class are 39.8 percent of the population, those earning ₱24,000 and even a little higher will be in danger of joining the poor. They are also be vulnerable to economic shocks, such as a serious illness in the family, or losing their jobs.
Subsidies are generally limited in amounts. The transport sector will be given subsidies, but these are more often one-time dole-outs and have no lasting effects. They are also very limited in scope. More often than not, politicians make a big show out of handing out subsidies, in aid of re-election.
At the country level, a one percentage point increase in the VAT rate is associated with a 2.802 percent decline in average nominal wages. The same increase will produce a 1.444 percent decline in employment. So, while the government enjoys a windfall with VAT collection, the people, especially the great majority of Filipinos, will suffer more.
We are not in the critical phase of this war-induced economic downturn yet but it will definitely get a lot worse before it gets better. Already, we are feeling the inflationary effects of the oil price increases in terms of higher prices on practically everything that needs to be imported or transported to the point of sale.
The mass transport sector was the first to be affected, with jeepney drivers and operators staging strikes. They were the first to clamor for removing excise taxes and VAT. But the inflationary price spiral will surely hit the average consumer hard. Daily wages which are hardly enough to keep body and soul together, will be even more inadequate in the face of price increases on all necessities-food, clothing and shelter.
As the inflationary effects of the Mid-East crisis accelerate, many more will sink into poverty. The divide between the haves and the have-nots will widen. People will be driven to commit crime to make ends meet in desperation. Parents cannot stand seeing their children starve. There will be social unrest which fringe elements will make the most of and agitate for regime change. This nation, already divided, will face even more fragmentation. The administration, already besieged by multiple crises, should act to ameliorate the effects of this crisis, or it will face challenges to its authority and possibly, destabilization efforts by its enemies, including its former partners. This does not augur well for the Marcos Jr. administration.
The government is set to have a revenue shortfall of ₱121.4 billion with a suspension of the excise tax. Definitely, suspending the VAT on fuel and necessities will cost the government more. The total revenue losses will be around ₱330 billion. It will result in a fiscal deficit, increase national debt, reduce spending on essential social services and development projects, and further reduce government income due to reduced indirect taxation. But we should weigh the costs of lost government revenue with the cushioning of the crisis-induced inflation that will hit every Filipino hard, more so the daily income earner. It’s time to reduce spending on other services. Development projects can wait. Everyone should tighten their belts.
Besides, the revenue shortfall will primarily affect the provision of unprogrammed funds, which are the primary target of corrupt government officials. For the year’s budget, unprogrammed funds have been trimmed to ₱150.9 billion. Without any unprogrammed funds to tinker with, politicians will have less opportunities for dipping their dirty fingers into government coffers. That may well be the silver lining in this scenario.
