Former Finance Secretary Margarito Teves along with sectoral leaders have expressed to the Congress their support for a provision under House Bill No. 4774 that seeks to adjust the diesel excise tax and index it to inflation, as part of a government plan to raise enough funds for a massive public investment program to attack poverty and sustain the country’s streak as one of Asia’s fastest growing economies.

Together with Teves, officials of the Action for Economic Reforms (AER), and the Tax Management Association of the Philippines (TMAP) similarly issued their respective groups’ statements of support for HB 4774 at a hearing of the House Committee on Ways and Means.

The nonprofit research group International Tax and Investment Center (ITIC), based in Washington DC, also backed the fuel excise tax hike.

Cua, who chairs this House panel that tackles all revenue-related congressional proposals, has filed HB 4774, which covers the first package of the Comprehensive Tax Reform Program (CTRP) that the Department of Finance (DOF) has endorsed for congressional approval as an integral component of the Duterte administration’s unmatched spending on infrastructure, human capital and social protection over the next six years.

HB 4774, which Cua filed in the chamber last Jan. 17, is anchored on sizable cuts in personal income tax (PIT) rates, as part of the CTRP plan to make the country’s tax system simpler, fairer and more efficient, particularly for poor households along with low- and middle-income taxpayers.

To make up for the expected losses from the PIT cuts, Cua’s bill provides for revenue-offsetting measures including a staggered increase in the diesel excise tax from zero to P6 per liter over a three-year period from the second half of 2017 to 2019. By 2020, the diesel excise tax would be adjusted by 4 percent to account for inflation.

“Strictly on the proposed excise tax on fuel products, I support the staggered increase as proposed by the Department of Finance,” said Teves, an economist who was DOF secretary during the Arroyo administration and a former lawmaker.

Economist Jo-Ann Latuja Diosana, reading AER’s position paper during the hearing, also backed Cua’s bill, pointing out that the taxes on petroleum products “is not just about compensating for the loss from the personal income tax reform but also, together with other excise taxes, is the most effective way in the generation of domestic resources.”

“After all, the burden of taxation on petroleum falls mainly on the richest 10 percent of the population,” she said.

Wayne Barford, senior advisor of the ITIC also said at the hearing that “on petroleum, we support the recommendations from the DOF.”

“We support the approach of the DOF. We look forward to good tax reform in the Philippines,” he added.

Maria Lourdes Lim, who represented TMAP at the hearing, said the proposed oil excise tax adjustment “is a compensating revenue measure that would not adversely have an effect on poor and marginalized sectors of the society because fuel prices are expected to be low in the next several years.”

Teves and Lim separately suggested that the panel consider indexing the fuel excise tax to the actual inflation rate by 2020, rather than imposing a flat rate of 4 percent.

“The proposal of the Department of Finance is an automatic 4 percent. If the Department and the Committee will consider the actual inflation rate….we note the actual inflation rate of the past two years has averaged about 2 percent. So I think it’s better to look at the actual inflation rate as indicated by the Bangko Sentral rather than…. (the) figure of 4 percent,” Teves said.

Lim also said that “in terms of indexation, this should be based on inflation.”

Teves’ support brings to 20 the number thus far of former top officials of the DOF and the National Economic and Development Authority (NEDA) who have publicly thrown their support behind the DOF-proposed CTRP.

At the House hearing on HB 4144, Finance Undersecretary Karl Kendrick Chua explained that to prevent an undue increase in the cost of petroleum products in the future, the CTRP proposal includes a suspension of the rate adjustment if and when global oil prices hit $100 per barrel.

“Pegging the suspension of the tax at $100 per barrel is a ‘psychological barrier’ meant as a safety measure to ensure that fuel excise taxes do not increase indefinitely,” he said.

Chua said the figure of $100 reflects the average between the peak of Dubai crude price in 2011 of $130 per barrel and a peak low in the last five years of around $60 per barrel.

“However, this is more of a last resort to safeguarding our oil excise system because we do not think that reaching $100 or even $80 is very visible in the near future for three reasons,” Chua said.

These are: 1) the price of global crude has been much lower than 10 years ago because of the growth slowdown in China, which has significantly reduced demand 2) the discovery of shale oil provides the world market with an alternative supply in the future, and 3) the Organization of Petroleum Exporting Countries (OPEC) is unlikely to abruptly cut supply to boost profits because a more important consideration for its member-countries is retaining their market share rather than revenues.

“So given these reasons, the World Bank, the IMF (International Monetary Fund) and many international organizations project that in the next three years, we will have oil at $50 to $60 per barrel,” Chua said.

As for the proposal to index the fuel excise rate to actual inflation, Chua said the DOF “is open” to this suggestion and will restudy its numbers.

Last month, 14 former DOF secretaries and undersecretaries plus 5 former NEDA directors-generals released a joint manifesto supporting the CTRP, which, they said, would “correct the structural weaknesses” of the country’s system and serve as a tool to decisively attack poverty and achieve inclusive growth.

Signing the joint manifesto were ex-DOF Secretaries Cesar Virata, Jose Isidro Camacho, Jesus Estanislao, Roberto De Ocampo, Jose Pardo, Cesar Purisima, and Juanita Amatong; ex-NEDA chiefs Arsenio Balisacan, Emmanuel Esguerra, Cielito Habito, Felipe Medalla, and Romulo Neri; and former finance undersecretaries Romeo Bernardo, Cornelio Gison, Lily Gruba, Milwida Guevara, Jose Emmanuel Reverente, and Florencia Tarriela.

In their manifesto, these 19 ex-DOF and NEDA executives said, “We support the increase in oil and automobile excise taxes as a very progressive means of raising revenues and addressing the negative externalities of pollution and traffic congestion as families optimize the purchase and use of cars.”

“Given that the top 10 percent of households (comprising the richest 2 million households) account for around 50 percent of all petroleum consumption, while the top 1 percent (comprising the richest 200,000 households) account for 13 percent of all petroleum consumption, raising oil excises means that we stop subsidizing the consumption of the rich and instead use the incremental tax revenues to fund infrastructure and protect the poor,” they said.

The National Unity Party (NUP) led by its president, Rep. Karlo Nograles, has also expressed its full support for the tax reform package under HB 4774.

Chua said the proposed adjustments to the oil excise tax under HB 4774 aim to stop subsidies on the fuel consumption of rich households and channel instead such would-be savings to the government’s unprecedented infrastructure program that would create more jobs, boost productivity and sustain high growth.

He said that rather than indirectly subsidizing the rich, the additional revenues to be collected from the fuel excise increase would be better spent (1) on targeted transfer programs for about 10 million poor and vulnerable households that would be affected by the tax hike, and (2) earmarked for infrastructure projects to reduce traffic congestion and pollution and raise workers’ productivity.

Cua’s HB 4774 seeks to lower PIT rates along with the rates for estate and donor’s taxes, while adjusting automobile and fuel excise taxes and expanding the value-added tax (VAT) base, but retaining the exemptions enjoyed by senior citizens and persons with disabilities.

Complementary reforms being considered by the Congress to this revised tax package include introducing a sugar-sweetened beverage tax, indexing the motor vehicle user’s charge to inflation, and granting an amnesty to past estate tax cases.

Moreover, the revised plan also includes legislated administrative reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) such as the adoption of a fuel marking and monitoring system to prevent oil smuggling—not only to collect the correct taxes but also to ensure that only high-quality petroleum and not adulterated fuel are sold in the market—along with the use of e-receipts; the mandatory link of the point-of-sale (POS) systems of establishments directly to the BIR; and relaxing bank secrecy laws for investigating and combating tax fraud.