Finance Secretary Benjamin Diokno has criticized proposals to suspend value-added and excise taxes on fuel as a means to address surging pump prices, stating that it would result in significant revenue losses for the government. Diokno quantified the potential loss as P72.6 billion, equivalent to 0.3% of gross domestic product (GDP) growth, with P41.4 billion from excise taxes and P31.2 billion in value-added tax (VAT) on fuel products during the last three months of 2023. Over a year, the estimated revenue loss would be P280.5 billion, or 1.1% of GDP.
Diokno emphasized that implementing policies that could negatively impact the macro-fiscal stability and sustainability of the country is not a responsible approach for the government. He stated that the increased deficit-to-GDP ratio and higher public debt-to-GDP ratio resulting from the suspension of fuel taxes could lead to a negative impact on the country’s credit rating status, increased risk premium for government borrowings, and higher debt servicing costs. Private sector borrowings would also become costlier, affecting private investment and economic growth.
Diokno argued against suspending the fuel excise tax, describing it as short-sighted, ill-advised, and regressive. He highlighted that the wealthiest 10% of Filipino households, who use nearly half of the country’s fuel, would benefit the most from the suspension. Instead, he suggested providing subsidies to vulnerable groups such as jeepney operators, farmers, and fisherfolk as a better alternative.
Diokno also warned that once the elevated oil prices subside, it may be politically unpopular to restore taxes on oil products. He stressed the negative consequences such a move would have on the country’s economic and fiscal recovery, international credit ratings, and overall debt management strategy. Although some politicians have supported the proposal to suspend fuel taxes, Diokno emphasized the need to consider the long-term effects and the greatest good for the greatest number in formulating policies.
Source: The Manila Times