Press Releases

Salceda on ERC request for VAT removal on power generation: ‘You need a law for that, focus on the poor instead;” House tax chair says he is ‘looking for measures to fund Bayan Bangon Muli’ package

May 20th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) asserted that, contrary to the claim of the Energy Regulation Commission (ERC) that “no legislation is necessary” to remove VAT on the generation charge, “you need a law for what Chairperson Devanadera is saying,” and that a more constructive effort is “to just improve subsidies for lifeline rate users to help the most vulnerable.”

“Legally, it’s not possible. The TRAIN Law expressly repealed the VAT zero-rating on the generation charge. So, you can’t just do regulation to counter the law. Just as you need Congress to impose taxes where the law does not impose taxes, you need Congress to exempt a sector from tax when no such exemption presently exists in the law,” Salceda said.

Salceda adds that the double-taxation interpretation of the ERC is incorrect.

“That’s not right. The Value-Added Tax is, well, a tax on value-added. So, the VAT on the final power bill isn’t duplicating VAT on different components of the final charge. It’s imposing the 12% on whatever added value there is at every stage,” Salceda said.

“It’s also a bad idea to VAT some inputs and exempt some others. We only disaggregate the charges. EPIRA requires that the charges be unbundled for transparency purposes. But, that’s not necessarily for tax purposes. When you VAT bread, you don’t say, oh let’s exempt the flour or labor component, and let’s just make consumers pay the VAT for the packaging,” Salceda added.

“Of course, economically, it also doesn’t make sense to make a VAT exemption that applies to everyone, including the rich and the big businesses. The rich and the big businesses tend to consume more than the poor, who are, after all, lifeline users. So, our energy supply issues will only get worse if you tell the rich and the big guys, look, we will subsidize your consumption with lower taxes, so feel free to consume more. It sends the wrong signal to the wrong people.”

“I don’t know also if it’s a good idea at this point to replace lost tax revenues on one end with new tax measures on another, as ERC was suggesting. I’m not going to raise new revenues from tax measures we pass in my committee, just to pay for exemptions mostly for the rich. I want new revenues going to new health, economic, and social programs,” Salceda added.

“ERC suggested we raise taxes on cars. That’s probably right. But you want the revenues from that tax to pay for better roads, more rail for less traffic, and better services. On the suggestion that we impose gambling taxes, that’s also right, but we shouldn’t do that to pay for tax exemptions. We should use that for health services, as is standard for taxes from the PCSO and PAGCOR.”

“Instead, here’s what I suggest we do: Let’s focus on the poor. Let’s consider increasing the lifeline subsidies by the equivalent amount in VAT, around 10% of the bill more. That way, you keep your fiscal costs to those who need it. VAT exemptions are almost always pro-rich.” 

On excise tax exemption

Salceda also said that while he favors a temporary and partial excise tax suspension on oil prices, “the suspension should be time-bound and price-bound also.”

“The shock was temporary so the exemption should be temporary,” Salceda added.

“But that depends on the next administration and its fiscal and spending plan,” Salceda added.

“Oil drives around 2.5 percentage points of general prices. So, some immediate relief will be welcome. Unbundling the fuel prices to prevent price abuse is also crucial.”

On the Bayan Bangon Muli package

“That’s my appeal to the BBM administration: VAT exemptions are almost always pro-rich. Keep PGMA’s and PRRD’s VAT reforms in place, because they got us out of economic crises with strong GDP recovery and tax effort. We also need to fund the Bayan Bangon Muli spending package announced by incoming Speaker Martin [Romualdez]. And that’s just so much harder to do if we create unwise tax exemptions.”

“I’m looking for measures to use to fund the Bayan Bangon Muli package being proposed by the incoming BBM admin. I’ll help Speaker Martin fully fund that package. Let’s try to keep the fiscal space intact,” Salceda added.

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