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This document discusses the issue of rising oil prices in the Philippines and proposes potential solutions. It outlines two options to address the burden of increasing fuel costs: temporarily lowering the VAT on petroleum by 9% or suspending the VAT on petroleum entirely. Suspending the VAT is presented as a fair option that could provide direct relief to consumers without intervention. The government is argued to have gained substantial tax revenue from previous fuel price hikes that could offset lost income from suspending the VAT. A decision is urged to help ease the public's current difficulties from high energy costs.

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Marvin San Juan
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46 views

Synthesis Topic

This document discusses the issue of rising oil prices in the Philippines and proposes potential solutions. It outlines two options to address the burden of increasing fuel costs: temporarily lowering the VAT on petroleum by 9% or suspending the VAT on petroleum entirely. Suspending the VAT is presented as a fair option that could provide direct relief to consumers without intervention. The government is argued to have gained substantial tax revenue from previous fuel price hikes that could offset lost income from suspending the VAT. A decision is urged to help ease the public's current difficulties from high energy costs.

Uploaded by

Marvin San Juan
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Bachelor of Science in Accountancy

SYNTHESIS
ISSUE : Endless increases in oil prices (See Attachment A) PARTICULAR CONCERNS : The following concerns will be addressed: 1. Reasons of price increase 2. Laws and other Regulations governing oil companies 3. Financial aspect of selected oil companies and its contribution to government 4. Burden vs. Benefit 5. Proposed solution (suspending or lowering VAT) See Attachment B BACKGROUND :

National news always includes the issues of continuous and frequent price increases in petroleum products which seemed to be a great burden for all. Based on the news update of the Philippine Daily Inquirer, it is already 15th time since the beginning of the year that oil firms had raised fuel prices, adding up to a total increase of over P11.45 per liter for premium gasoline and P10.10 a liter for diesel. Most of us are not aware of the rationale behind this price hike which results to our resistance (e.g. rally, etc.). With this concern, it is currently appropriate to learn and study this problem. Moreover, an opinion from the same publication addressed 2 possible solutions which may be considered to lighten the burden of the people. The first option is to temporarily lower the petroleum VAT by 9 percent, and the second is to temporarily suspend VAT on petroleum, entirely. Being accountancy students, it seems that with our background in accounting and taxation together with proper research, the rationale of these options can be clearly identified. Thus, this will be a good avenue to better understand the problem and possible solutions. QUESTIONS :

The paper will answer majority, if not all, of the following questions: 1. 2. 3. 4. 5. 6. 7. 8. 9. LIMITATIONS What are the reasons of oil price hike? How does the government regulate the increase in petroleum products? How to compute for the appropriate oil price increase rate? How this inflation affects the financial status of oil companies? How much income did the government derive from this inflation? What are the benefits received by the people? Are these benefits enough to compensate the burden of this price increase? What is the rationale of suspending or lowering VAT to solve this problem? What other alternatives will be recommended for this problem? :

Availability and sufficiency of data

Gas prices of 4 oil firms rise without prior announcements


By Amy R. Remo Philippine Daily Inquirer First Posted 21:41:00 05/03/2011 Filed Under: business, Oil & Gas - Downstream activities, Consumer Issues MANILA, Philippines -- Local oil companies again raised prices of premium gasoline by P1.40 a liter, of regular gasoline by P1 a liter and of kerosene by 30 centavos a liter, beginning Tuesday. Motorists, however, were not given advanced notice as oil firmsnamely Pilipinas Shell Petroleum Corp., Chevron Philippines, Petron Corp. and Total Philippines made the advisory only on the same day the prices were adjusted. Independent player Eastern Petroleum, for its part, is set to implement the same fuel price increases only on Wednesday (May 4), and it said that the latest adjustment was due to rising oil prices in the global market, particularly at the Mean of Platts Singapore benchmark for refined petroleum products. This would be the 15th time since the beginning of the year that oil firms had raised fuel prices, adding up to a total increase of over P11.45 per liter for premium gasoline and P10.10 a liter for diesel. The only three reductions, on the other hand, were marginal in comparison, at only P1.75 a liter for gasoline and 65 centavos for diesel. The Department of Energy has not released its report about current levels of fuel prices in the local market, following this oil price hike.

MAPping the Future

Suspending VAT on petroleum


By Anthony Alden S. Aguilar Philippine Daily Inquirer First Posted 21:50:00 05/01/2011 Filed Under: Consumer Issues, Energy, State Budget & Taxes, Government, Oil & Gas Downstream activities PRESIDENT Aquino, in his inauguration speech, said with conviction, Kayo ang boss ko, kayat hindi maaaring hindi ako makinig sa mga utos ninyo (You are my boss, and I must obey your orders). Poor Juan de la Cruz, who happens to be the boss, is now in a quandary while watching the seemingly endless increases in oil price. What can the boss do now? Should the boss require the President to suspend the Value Added Tax (VAT) on petroleum? VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services. By law, therefore, the VAT is automatically added to the value of goods, services, exchanges. Thus, the final consumers bear the burden of paying the VAT. Final consumers include all Filipinos, whether rich or poor. However, the difference lies in the impact of the added tax burden to them. To the rich, the amount is immaterial, but to the common people, the amount may be enough to buy other necessities that they use on a day-today basis. Ergo, the lifting of VAT may go a long way to an ordinary Filipino. Dubbed one of the most dangerous places to be a bus driver in the world, the Philippines serves as home of drivers who swerve here and there, while commuters cross the streets at their own convenience. The problems of our transportation system, like so many other problems, have been left unsolved. For now, just like in previous years, these problems will have to be set aside because of the more pressing problem of oil price hike. Out of a drivers income, a portion goes to the owners of vehicles for what they call boundary, a portion goes to petroleum expenses, which is over and above the boundary, another portion is for VAT on petroleum, and the rest goes to the drivers family. Two alternatives have surfaced in the light of the recent round of oil price increases and the implementation of Pantawid Pasada Program which, by the way, has been criticized for its insufficiency to address the problem and for failing to cover the fishermen and farmers, and other sectors who are using petroleum in their operations, not to mention the working class who pay VAT on oil directly or indirectly.

The first option is to temporarily lower the petroleum VAT by 9 percent, and the second is to temporarily suspend VAT on petroleum, entirely. Either way, there will be administrative implications. The software must be reprogrammed and BIR processes must be followed. The government, together with some economists, argue that the suspension of VAT will mean loss of income needed to support vital projects. However, it has been reported that an estimated P4.5 billion (and increasing) in windfall was gained by the government on the oil price increases. Add this amount to the Pantawid Program budget and we may be able to fund the loss of income that the suspension of VAT will cause. For years, drivers of both the private and public utilities, including the operators, have paid the VAT and maybe just this once, government should allow them to rest, even for a while, and make these taxes work for them. It cannot be denied that the government has generated revenue from VAT on petroleum for the longest time. It is also apparent that government is willing to do something to address the problem. What we can only do is to choose the best option. Juan de la Cruz must be able to enjoy the benefits of the taxes they paid. To me, the suspension of VAT is a solid, fair and just alternative. The beneficiaries will directly receive the help given by the government without any intervention. Whatever alternative will be chosen, the choice must be made in the earliest possible time. Lowering or suspending the VAT on petroleum will require the nod of Congress and of course the President. Processes must be started for Juan de la Cruz to be able to survive his current predicament. However, the situation should not be used to discredit the President. In this situation, every sector loses something. What we are looking for is an alternative which will lessen the loss for us, the stakeholders, the bosses. Proper consultation is a must. The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a tax partner of Endriga, Manangu, Aguilar & Associates, CPAs, Tax and Management Consultants. Feedback at map@

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