ERC backs suspending fuel excise tax

BY LENIE LECTURA – MAY 19, 2022
from Business Mirror

THE Energy Regulatory Commission (ERC) is supporting the proposal to suspend fuel excise tax that, its chief said, could immediately and effectively bring down power rates.

ERC Chairman Agnes VST Devanadera, who announced that her term will expire on July 10 this year, told reporters in a news briefing that the suspension of excise tax on coal and petroleum products can be immediately felt by consumers, and with the least impact to stakeholders other than electricity consumers.

Devanadera explained that the current generation rate of the Manila Electric Co. (Meralco) due to the increasing coal and fuel prices is at P5.8724 per kilowatt hour (kWh). Prior to implementation of the next excise tax rate under Republic Act 10963 (Tax Reform for Acceleration and Inclusion, or Train, law), the generation rate is P5.8623/kWh.

If excise tax rate under the TRAIN Law will be temporarily suspended, the rate reduction that can be felt will be at P0.0101, the ERC official said.

Meanwhile, for missionary areas which are considered the poorest of the poor, where 100 percent of its power supply is coming from diesel or bunker fired power plant, the impact of the excise tax pursuant to the TRAIN LAW is significant.

It shows that the P1.50/kWh will be reduced in the generation rate if the P6/liter excise tax is removed. This, however, will be seen as a reduction in subsidy since customers in the missionary areas pay a subsidized generation charge (SAGR) and the difference in the actual cost is source through the “universal charge.”

The suspension of excise taxes will likewise have an impact on the transportation sector that rely 100-percent on fuel products.

“ERC, or I, would like to come up with some proposals. For example, there can be a temporary solution and there can be permanent solution. The very immediate is we can go into suspension of the excise tax on the coal and the petroleum fuel products,” Devanadera said.

“Other countries provide subsidy for energy. Here, however, the impositions of government in terms of taxes amount to about 12 percent. Well, because of this and some other factors, the Philippines is now one of the highest in terms of electricity rates in Southeast Asia. The actual cost that is being billed to us is reflective of the real cost as there is no subsidy,” she added.

The ERC chief also raised a “double” VAT (value added tax) error computation.

The generation, transmission, distribution components of an electric bill are all subjected to VAT. She said that due to the manner of implementing BIR rules on VAT computation on gross receipts, generation and transmission charges are subject to VAT when billed to distribution utilities (DUs) and again subjected to another VAT when included in the billing statement of DUs.

As such, if a Meralco customer consuming 145kilowatt hour (kWh) will be billed at P1,412.71 if the generation and transmission charges are subjected to VAT twice.

On the other hand, if the VAT computation on the gross receipts of DUs is limited only to the distribution charges, the said Meralco customer will only be billed at P1,304.28.

The correction of the VAT imposition will result to a reduction of about 7.65 percent of the total bill of a residential consumer or a difference of P108.43.

Devanadera said that in order to correct this VAT computation, the BIR may issue a rule that gross receipts of DUs that will be subjected to VAT should be limited to the distribution charges and no other.

“I’d like you to review your bill. You’d see the double imposition of VAT and that makes the amount that consumers pay to be higher than what it should really is. It’s a matter of interpretation. The agency that can do this is BIR and that will give us a reduction of about 7 percent. So that’s a lot,” she said.

The ERC chief also proposed the reduction of VAT on generation rate, which accounts for about 50 percent of an electricity bill.

While VAT is a major source of electricity for the government, a temporary and partial suspensionof its collection in the energy sector can provide an economic relief for electricity consumers. The ERC proposed a reduction to six percent from the current 12 percent.

She also proposed the continuation of fuel subsidy to public utility vehicles, and the discontinuance of collection of universal charge snd environmental charge.

Also, she raised the possibility of an increase in POGO (Philippine Offshore Gaming Operations) taxes.

“The government needs to produce around P600 billion and this is what I call a prioritization and also a judgment call. We can increase the taxes for non-essentials.

“We can consider increasing the taxes for POGOs because those are non-essentials, right? I’m sure our committee on ways and means will be very creative. What’s important here is how do we value or how urgent is or how important it is that the consumers be given a lower rate of electricity,” the ERC chief explained.