Cap it!

Published by rudy Date posted on March 18, 2011

Traditional solutions only solve traditional problems.

In the case of solving the problem of high fuel prices, traditional politicians as well as government officials need to sit down with oil industry players in order to develop mutually beneficial and acceptable solutions because at the end of the day, they are ALL part of the problem and can be part of the solution.

Senators and Congressmen from the administration and the opposition are directly or indirectly responsible for the creation of the VAT law. The government collects an average of P11 per liter at present prices inclusive of specific tax of P4.35 per liter on gasoline. The industry players make their money on the products that in turn is the basis not only for VAT and specific taxes, but other taxes such as income, import duties etc.

Being the principal sponsor of the VAT law, Senator Ralph Recto would be throwing out the high price he paid, by espousing a suspension of the VAT on fuel products. President Noynoy Aquino has already made it clear that we cannot disrupt government operations and funding just to please public sentiment. On the other hand, we cannot expect the oil industry to irrationally sacrifice business for the sake of popularity.

However, playing lip service to populist solution or playing the blame game does not help either. It will not solve the problem, if Senator Recto allows himself to be drawn by public or media sentiment. Neither will asking government to make sacrifices or blaming the oil industry.

The good Senator should remember that today’s high fuel prices is being linked with the Value Added Tax, and if anyone can be blamed for that it would be the principal author, namely Senator Ralph G. Recto.

Senator Ralph Recto should do what he is good at, which is talking to the businessmen or in this case, the oil industry players and the Department of Finance to earnestly try to find solutions.

For instance, rather than pester Malacanang with the removal of VAT on fuel, why not put a cap on it. At the moment, the situation may be difficult but everyone somehow manages. The real concern about “high prices” is based on speculations that the price of oil might go from $110 to $150 per barrel.

So, why not determine a price at which point the VAT will remain the same even if fuel prices go beyond today’s average. This way, the public gets what they want in the form of a cap on VAT, while the government keeps what it already earns.

With a little pencil pushing, Senator Recto and his colleagues could sit down with the BIR or the DOF and work out a populist formula for the Specific Tax on gasoline. The guys who drive high tech cars and buy only V-power, Caltex Gold or Petron’s Blaze would end up paying the same specific tax as per current prices.

Meanwhile guys like me who drives a Revo or an Innova can pay a lower specific tax for our Extra 93 Octane. This scheme would be a blessing to our farmers and fishermen if the government can then give them a much lower specific tax for their low octane gasoline for their bancas and kuligligs.

If Senator Recto wants to rationalize the fuel prices, then he can also look into removing the VAT component on locally produced bio fuels. The whole point to the idea of bio fuels was to create an affordable alternative to foreign imports, but not create a profit center or income opportunity for government. What is the point of saving the money if all of it simply goes to government in the form of taxes and not as lower prices for consumers?

In the mean time, the Department of Energy has reportedly pushed for the oil industry to double their reserves in the event of a supply shortage or spiraling of prices due to global events.

The solution may be good or bad depending on the outcome of global events and developments in the oil industry, but at the end of the day, it is tantamount to telling businessmen how to run their companies and to take risks in favor of the DOE.

Is the DOE willing and in a position to finance the huge capital required? Has the DOE studied the actual impact on business performance of such an action?

When officials of the Arroyo administration last tried to manage the affairs of the oil industry, it resulted in a scarcity of supply with many gas stations selling very limited products or quantity. As expected, the populist act ended up inconveniencing the public but did not make the Arroyo administration any more popular.

This lesson would be good to keep in mind for people who have been so busy giving lip service to solutions that may be popular but improbable. As I pointed out, “what goes around comes around”. If we don’t solve the problem, we will all share the blame. –Cito Beltran (The Philippine Star)

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