Diokno: Suspending VAT, excise tax on fuel product to hit PH's fiscal recovery

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Metro Manila (CNN Philippines, September 19) — Finance Secretary Benjamin Diokno, the chief economic manager of the Marcos administration, warned of "serious consequences" on the government's target to regain a healthy fiscal position if lawmakers decide to push for the suspension of value-added tax and excise tax on petroleum products.

Diokno, in a statement Tuesday, said that any of the proposals would produce a negative domino effect on the local economy and the government's fiscal recovery.

He stressed that imposing such "regressive" proposals would only benefit the rich, "without providing lasting inflation relief" as the bottom half of households only consume around 10% of the total fuel consumption.

The finance secretary's reaction came a day after House Speaker Martin Romualdez said that the lower chamber was open to discussing these proposals with President Ferdinand Marcos Jr.

READ: Romualdez: House open to suspension of excise tax on oil products

"The revenue loss and its fiscal implications are awesome," he said, noting that they estimated a revenue loss of ₱72.6 billion for the last quarter alone.

For a full year, revenue loss may reach ₱280.5 billion, or 1.1% of the economy.

Subsequently, this would result in a higher deficit to the gross domestic product (GDP) and public debt-to-GDP ratio, Diokno added.

"With the deterioration in the fiscal picture, we run the risk of an international credit rating downgrade. This will increase the risk premium for government borrowings, consequently another round of higher debt servicing," he said.

"Private sector borrowings will become costlier and have a negative impact on private investment and economic growth," the finance chief said.

Diokno maintained that the "best approach is targeted subsidy" to affected Filipinos.

This week marks the 11th week that oil companies have made upward adjustments on fuel products. Earlier this month, the Department of Budget and Management green-lit the release of ₱3 billion worth of fuel subsidies for transportation workers.

He also raised concerns about bringing back the system.

"Removal of taxes is a popular move for politicians. But legislation takes time. Once the elevated oil prices subside, it may not be easy to restore taxes on oil products. It is politically unpopular," Diokno said.