Wednesday, July 30, 2008

Lifting VAT on oil helps the rich

Taking off the consumption tax on oil products in the Philippines, as Senator Mar Roxas has been pushing for, is a bad idea.

Higher-income households are the top consumers of all goods, especially oil products, so they'd benefit most from a tax reduction-- and that's just not right in a country with such a wide gap between the rich and the poor. Of course, some of the benefit would eventually trickle down to help the poor too, indirectly, but basically it would be a tax cut for the rich that hurts government revenue and sinks the country deeper into debt.

The well-off are the top consumers of oil products. That's why the United States (Population: 300 million) is the world's top consumer, eating up more than a quarter of the world's oil. That's more than the next five countries combined-- China, Japan, Russia, Germany, and India (Combined population: 2.8 billion).

If you look a list of countries ranked according to oil consumption per capita, the relation to wealth is so apparent that you could mistake it for a list based on GDP per capita. Look at the Philippines' positions, for example... Oil consumption per capita ranking: 127. GDP (PPP) per capita ranking: 128.

Oh, and the country at the bottom end of oil consumption per capita? The Democratic Republic of the Congo. Among the poorest of the poor.

What does need to be done is to channel these VAT revenues into spending on things we need like infrastructure and education. I'm not a fan of the idea of direct subsidies for the poor, but if that delivers the benefits to those that need it most then it is at least a step.

I'm not saying anything revolutionary here, this stuff is just common sense. The IMF agrees with me, at least.

Mar Roxas called suspending the VAT on oil a "win-win" solution for both the transport sector and for consumers, but a conflict between those two is obviously not the issue. It would be a big lose for government revenue, which the VAT was made to address, and making an exception that favors the rich more than anyone else does not make sense.

You know, Roxas really does seem like a nice, cool, smart guy. To see him positioning himself for a presidential run by championing an empty populist cause is unfortunate. He should know better. I think he does.

4 comments:

  1. hi mike, this your dorm mate from bicol ;)

    i like how we agree on a lot of things (see my past blog posts), and this entry of yours is no different.

    i'd go further and insist that our oil price should match those in other places (P100+). people should learn how to conserve rather than find ways to consume more for less. (the true essence of moderating one's greed!) this would also decongest our streets and subsequently our lungs. the additional VAT revenues could be channeled to subsidize and develop public transport.

    the only valid apprehension on VAT is that it is also used to satisfy the corrupt, but cutting their source of funds will also cut the funding for government projects. think! when funding is low which will suffer first, the corrupt?

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  2. Oy, hi Dave. :) How did you find me?

    If I'm calculating right, our current gas price ($5.20 per gallon) is still within the price range of other countries. More expensive than the US, but much cheaper than Europe.

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  3. I think it was either a link by Manolo Quezon or your comment on Martin Perez's blog.

    I think you're right about the prices. I actually like Europe's policies on oil. I hope we could adopt them.

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