EVAT Chronology

CHRONOLOGY OF EVENTS ON THE IMPOSITION OF VAT ON
POWER AND PETROLEUM:

1.  December 20, 2004, excerpts from the DOF
Presentation during the Committee on Ways and Means
Briefing:

Slide #4

“DOF supports the following measures:

ü                 Repeal of Certain VAT exemptions
                   (HB No. 3105 by Rep. Salacnib Baterina)
1.                 To increase revenues
2.                 To expand the VAT collection
3.                 To eliminate price distortions
4.                 To enhance collection of VAT and other taxes
Through the audit trail

ü                 Increase rate of Vat to 12%
1.                 To increase revenues

ü                 In addition, DOF proposes the repeal of zero-rating
of generation
Companies and NPC (Sec. 6, RA 9136 or EPIRA) and
Transco (EPIRA IRR)
1.                 To plug revenue leakage”

Slide #16

“Repeal VAT exemption of the following:

1.                 Sale or importation of coal, natural gas and
petroleum products
Rationale:  Petroleum industry has been deregulated
since 1996.  Previously, VAT could not operate as a
pass-on tax since industry was under price regulation.

Coal and natural gas are alternative sources of fuel.
Therefore, have to be treated similarly.

Estimated Revenue Impact = P8.332 B”

Slide #17

“Repeal VAT exemption of the following:

2.                 Sale or importation of raw materials used in the
manufacture of petroleum products
Rationale:  Previously, VAT could not also be imposed
to due to price deregulation of oil industry; Tax can
be claimed as credit.

Estimated Incremental Revenue = P11.588B”

2.  January 13, 2005, In his testimony in the 1st
public hearing-briefing of the Committee, USEC.
EMMANUEL BONOAN reiterated the position of DOF as
presented last December 20, 2004 to the Senate
Committee on Ways and Means, to wit:

·                 “USEC. BONOAN. So the DOF supports the following
measures  which are now pending in the House.  x  x  x
.     In addition, the DOF proposes the repeal of
zero-rating of generation companies and NAPOCOR, and
of Transco under the EPIRA, the purpose of which is to
plug leakage. x  x  x” (TSN, Pamorca, I-1, 10:23 am,
p2)


 
“x x x.  In the case of lifting the exemptions in
maintaining the VAT rate of 10%, this would be an
additional P28B.  For the full revenue potential of
increase of VAT rate to 12%, this would be P50.17B.
And in the case of repealing the VAT-exemptions and
increasing the VAT rate to 12%, we’ve estimated a full
potential of P86.74B.  x  x  x.  

“---the tax will hit the consumers only according to
their ability to spend.  x  x  x” (TSN, Pamorca,
III-1, 10:43 am, p1)

3.  January 27, 2005; The House of Representatives
transmitted to the Senate HBN 3555, increasing the
rate of VAT from 10% to 12%.

4.  February 02, 2005, 3rd public hearing, following
statements were made:

·                 Mr. Edgar Chua, President Shell Corporation and
Philippine Institute of Petroleum Corporation
(composed of Shell, Caltex, Petron, Flying V)

“MR. CHUA. x x x.  And our position is that we favor
VAT compared  to the specific tax. VAT is a  more
effective tax and in the petroleum industry right now,
one of the major problems is  smuggling. Fraud and tax
evasion.  We believe that it would be comparatively
more difficult to actually have this fraud happen
under a VAT system because it is self-policing. x x
x.”(TSN, Catadman, I-1, 1:22 p.m., p2)

                “x x x,. we know that one of the major concerns is
that it will hit the socially sensitive products. So
one compromise that we believe maybe considered by
government is that for products like diesel, kerosene,
and fuel oil, which currently have specific tax, LPG
is zero already, x x x, what the government can
consider is to zero out the specific tax on these
products and just impose VAT, similar to LPG.  x x x.

                “This is an option which can be considered  if the
government wants to mitigate the impact of VAT on
socially sensitive products. .x x x.”( (TSN, Catadman,
I-1, 1:22 p.m., pp3-4)

“x x x.  Now, if we actually impose a 10% VAT, our
computation is that it will be about P35B” (TSN,
Catadman, I-1, 1:22 p.m., p5)    

·                 Mr. Ernesto Pantangco, President, Philippine
Independent Power Producers Association (PIPPA), gave
the following statements:

“MR. PANTANGCO. x x x  fuel costs, which accounts for
40-60% of an IPP’s power cost, is already at an
all-time  high.  x x x

“However, if the Committee decides to reimpose VAT,
PIPPA strongly urges the Senate Committee to consider
a VAT coverage that will include all players of the
industry, both government and private.  NPC’s present
charter exempts it from all direct and indirect taxes.
If they are excluded from the VAT coverage, we will
have a distorted playing field in the power industry
because prior to full privatization of NPC, the
privately owned generators will actually be in
competition with a subsidized state-owned power firm,
over and above enjoying preferential tax treatment. x
x x” (TSN, Manuel, IV-1, 1:52 p.m., p2)  

·                 On the statement of Senator Recto that the Committee
is looking at about P40B just for the 48 IPPs alone if
a 10% VAT is imposed on their gross sales of P400B,
Usec. Bonoan replied:

“USEC.  BONOAN. That is correct, on the gross sales”
(TSN, Guinhawa, V-1, 2:02 p.m., p3)



5.  February 8, 2005, 4th public hearing, following
gave their statement on the imposition of Vat on power
and petroleum:

·                 Mr. Guillermo Luz, Makati Business Club:

“MR. LUZ.  On the question of oil products, Mr.
Chairman, we feel that maybe we should make the switch
and move to a VAT on oil products and make the proper
adjustment on the excise tax on finished oil products.
x x x.  But to mitigate the effect of the price
increase in oil, it make sense then on the socially
sensitive products such as diesel, LPG and other fuels
to reduce the excise tax or even eliminate the excise
tax outright.” (TSN, Tupaz, III-1, 2:01 p.m., p3)

                “x x x.  I’m talking of finished products on oil
because we have basically diesel, av gas, fuel oil,
kerosene ( premium and regular), and LPG. x x x. For
instance, diesel, there might be a good argument for
eliminating, go to zero excise rate on diesel and
replace it with VAT. x x x.” (TSN, Pamorca, IV-1, 2:11
p.m., p1)  

·                 “THE CHAIRMAN.  Secretary Purisima, on petroleum
products, are you suggesting that we tax coal, natural
gas, hydro, geothermal oil?  Are we talking about the
whole gamut?

“MR. PURISIMA. Yes, Mr. Senator, Mr Chairman.

“THE CHAIRMAN.  At 12%?

“MR. PURISIMA.  Yes.” (TSN, Tumampos, I-1, 2:31 p.m.,
p5)

6.  March 01, 2005, the House of Representatives
transmitted to the Senate HBN 3705, imposing a VAT on
power and petroleum products with the “no
pass-through” provision.

7.  March 04, 2005, 9th public hearing of the
Committee, considering HBN 3705, following statements
were made on power and petroleum:

·                 “MR. PURISIMA.  There’s also a provision, Mr. Chair,
of the repeal of the VAT exemption of Napocor and
amendment of the EPIRA law.  We agree with this
provision to level the playing field for power
industry participants and we believe this  help in the
privatization process. x x x

“THE CHAIRMAN.  Yes, with regard to the no pass
through provision, could you share your comments on
this Secretary Purisima?

“MR. PURISIMA.  Well, the no-pass through provision
basically goes against the basic logic of  the VAT
system, Mr. Chair, and I believe that as you make it
as complete as possible, we will maximize the
efficiencies of collection of the VAT system.  That’s
why I am in favor  of the approach of the Chair in
lifting as many of the exemptions as possible. x x x”
(TSN, Balagne, II-1, 1:54 p.m., p1)

·                 On the query of Sen. Arroyo on the proposal of the
House to repeal the VAT exemption of Napocor, which is
against the charter of Napocor:

“MR. PURISIMA.  Mr. Senator, I agree with your point
that these are issues that we need to consider.  On
the other hand, we are in the process of privatizing
Napocor and with EPIRA law opening up the power
industry to more competition and, therefore, keeping
Napocor  with its exemption, I think, we’ll have the
result of not having a completely level playing field.
x x x” (TSN, Balagne, II-1, 1:54  p.m., pp4-5)





·                 As regard the question of Sen. Arroyo on the
prohibition against the pass-on of VAT in the House
Bill:

“MR. PURISIMA.  We believe, sir, that the more
complete the pass on features of a VAT system, the
more efficient it is ‘no.  And therefore, any
provision  that prohibits the pass-on ability makes
the system less efficient. x  x x  So my suggestion is
to have that pass on provision.” (TSN, Dela Cruz,
III-1, 2:04 p.m., p1)

·                 In presenting the DOF comments on HBN 3705:

“MR. PURISIMA.  We would like to go through  the DOF
assumptions and DOF proposal as originally submitted.
Under that proposal, we expected to  about 90 or 89
billion pesos at a hundred percent efficiency.  And
the key components of these proposals included an
increase in the VAT rate from 10% to 12% where we
assume, based on certain model, that based on 100%
efficiency, we will raise P50B.

                “The next big component of this model is the VAT on
petroleum products and raw materials for petroleum
products, combined is about P29B at a hundred percent
efficiency.

                “The other large components  would be the lifting of
VAT on cooperatives of P5 to P7B and lawyers and
doctors, medical services and legal services of P2.5B
which leads to about 90B approximately, and at 70%
efficiency, P62B.” (TSN, Dela Cruz, III-1, 2:04 p.m.,
p4)

·                 “THE CHAIRMAN.  Just a final point, Secretary.  In
your original proposal to the Committee, you had every
intention of VATing a 12% petroleum products and
really no intention of VATing the power sector, with
the exception of the IPPs from zero rate to exempted.
May I find out why not the power sector, and why just
the petroleum industry, when I would presume that the
petroleum industry is actually more inflationary than
the power sector?

“MR. PURISIMA. As originally submitted, Mr. Chair,
that is, in fact, correct, `no. And as we refined our
thinking through the process with inputs from the
House and the Senate and from the industry and other
entities, we have made adjustments in our thinking in
this area, and we do support your approach of having
as complete VAT system as possible.  and we believe
that is the way to go.

x x x.

“THE CHAIRMAN.  x x x. And it is not the intention of,
at least, the Chair of this Committee to impact
consumers by a full 10% on both power and petroleum,
especially petroleum because we know that world oil
prices are going up, and we know that petroleum is
more inflationary actually than power.  In fact
petroleum, with our assumptions here, 55% goes to the
final consumer, unlike power which is 35%.  x x x.
then  the Committee can look or play around with P17B
to mitigate the impact on power increases and
petroleum increases, x x x.  So we might have to
reduce excise taxes on petroleum products,
particularly for the socially sensitive products, such
as diesel, bunker fuel, kerosene, LPG and for power,
to mitigate, I suppose, certain inputs with regard to
indigenous resources, and to take away the franchise
tax in lieu of the VAT. x x x.” (TSN, Gonzales, VI-1,
2:14 p.m., pp3-5)
       
·                 On the query of Senator Osmena as to the preference
of Secretary Purisima assuming that the pocket of
Napocor is the  same as the pocket of the government
which Secretary Purisima confirmed:

“SEN. OSMENA.  If in that case,  what would you
prioritize – the increase in rates for Napocor which
is a kind of tax also, the universal levy or EVAT? x x
x (TSN, Cajandab, VI-1, 2:34 p.m., p8)

“MR. PURISIMA. Senator, as we privatize Napocor, that
assumption of the same  pocket diminishes and
therefore, the majority of the power  sector would be
less government, more, hopefully private  players.
And therefore, we prefer a VAT on this.” (TSN, Baisa,
VII-1, 2:44 p.m., p1)

8.  March 07, 2005, press release of RGR in Business
World:

“Noting that electricity and fuel prices will likely
increase once VAT is imposed on them, Mr Recto said
the Committee would remove the franchise tax of power
companies as well as cut the excise tax on socially
sensitive oil products”

9.  March 09, 2005, press release of GMA in the Manila
Bulletin:

“President Gloria Macapagal-Arroyo yesterday pressed
Congress to legislate a Value-Added Tax (VAT) law that
will cover “higher rates, wider coverage” and will be
“easier to administer” to convince the international
community, including the country’s multinational
donors led by the World Bank, about the government’s
determination to improve its fiscal position this
year”.          

10.  April 15,2005, 1st Bicameral Committee Conference:

·                 “REP. SALCEDA. x x x. Ang kailangan is, i-konekto pa
rin natin kung ano talaga ang target. Ang target
talaga sisenta, kasi otsenta iyong – we need 80
billion to restore primary surplus to 3.5% percent
GDP. XXX, so kailangan  natin ng otsenta para maging
3.5 percent of GDP iyong primary surplus, so otsenta.
Nakagawa na tayo ng deciseis sa sin taxes although
hindi natin nakukuha iyan ngayong first three months
gawa nga ng frontloading, so  ang minimum ditto
sisenta, sisenta bilin para ma-final natin talaga
iyong ating VAT x x x. (TSN, Masicap,  IV-3, 4:29 pm,
p.4)

·                 “THE CHAIRMAN (SEN. RECTO).  Yeah, Joey, I think our
commitment to the President, as far as the
administration Congressmen and Senators are concerned
is 80 billion for all the tax measures, x x x.” (TSN,
Masicap, IV-3, 4:29 pm, p.9-10)

11.  April 21, 2005, 4th Bicameral Committee
Conference:

·                 “THE CHAIRMAN (SEN. RECTO). On the executive because
this is an administration measure to begin with. So,
Secretary Purisima, could you please tell us, for the
record, in this Bicameral Conference Meeting, the
position clearly, the position of the executive on the
matter.” (TSN, Cajandab, II-1, 2:32 pm,  p.4)

“MR. PURISIMA. x x x.  When the President made her
speech in July last year, the environment was not as
bad as it is now, at least, based on the forecast of
most financial institutions. So, we were assuming that
raising 80 billion would put as in a position where we
can then convince them to improve our ability to
borrow at a lower rates. But conditions have change on
us because interest rates have gone up.
               
·                 “THE CHAIRMAN (SEN. RECTO). Secretary Purisima,
since we’re already at this, my impression is, correct
me if I’m wrong, but my impression is that the
President wants to lift all exemptions and she is
suggesting that it be raised to 12%.  Please correct
my impression,(TSN, Vicedo, IV-1, 2:52 pm, p9)

“MR. PURISIMA. I would like to confirm that sir.
Yeah.”

x x x.

“THE CHAIRMAN (SEN. RECTO).  x x x.  –when we talk
about lifting of exemptions, the principal items are
the power and  petroleum.  So that let’s not confuse
the other items, `no, at this point, `no. (TSN,
Guinhawa, I-2, 3:02 pm, p1)



·                 “MR. PURISIMA.  Yes sir, we prefer 12% rate, x x x.
We prefer  lifting the exemptions on fuel and
minimizing the reduction of excise taxes from the
present proposal of bringing down the excise tax on
diesel, kerosene to zero, to maybe halfway that amount
because we’re planning to reduce the duties from 5 to
3%.  On power, our first option really was moving the…

“THE CHAIRMAN (SEN. RECTO). Secretary Purisima, let’s
talk about the position of the President today.

“MR. PURISIMA.  For power, lifting the exemptions on
power  and  VATing it at 12% with pass through
provision, and with the provision that, and I think
it’s assumed that exporters don’t have to pay  the VAT
because they’re zero-rated so it will not be collected
anymore so that they don’t have to claim a tax credit.
(TSN, Guinhawa, I-2, 3:02 pm, pp2-3)

·                 “MR. LOTILLA. x x x. If NPC, as a generator of
electricity, is not allowed to pass on its VAT burden,
the estimated loss of the NPC proper is P15.3B  Now
Transco also which is a government entity will also
have to absorb the P2.7B.
x x x.

“MR.  LOTILLA. Mr. Senator, precisely, that reinforces
the position  explained by Secretary Purisima that we
need to pass this.  We need to allow the VAT to be
passed  through, because…..(TSN, Guinhawa, I-3, 3:42
pm, p1)

·                 “SEN. ARRROYO.   x x x, You confirmed that if the
President – what the President is asking now  would
yield  from P117or P118 to P133B, all right.

                “During all the deliberations that we had, we were
made to believe that what the President needed was
P80B.  x x x.   So for all the tax measures, all she
cared for was P80B.  x x x.

                “Now you say now, Secretary  Purisima, that the
President’s position, as of today, is  P118 to P133.
x x x.  Why, x x x.  So please explain because it kind
of bothers us.

“MR. PURISIMA.  First the P133B, sir.  We at the DOF
do not agree with this accounting in concept because,
as I stated, this assumes a 100% efficiency.  x x x.
Our efficiency is at 70%, x x x. (TSN, Cajandab, II-3,
3:52 pm, pp4-5)  

·                 “THE CHAIRRMAN (SEN. RECTO).  x x x. Secretary
Purisima, could you shed light on the no pass through
provision, again. Just to clarify once and for all.

“MR. PURISIMA. On fuel and power, Mr. Chairman, we
prefer a pass through provision. (TSN, Sotto, III-5,
5:44 pm, p2)

12.  April 25, 2005, 5th Bicameral Conference
Committee:

·                 “SEN RECTO. Then therefore, we should not take away
the excise taxes on petroleum products.  But then
again, the effect is, you want a 10 percent increase
on petroleum prices.  Is the Executive Administration
willing to take the responsibility and accountability
for, let’s say, increasing diesel prices by 10
percent? Are you willing to accept the accountability
and responsibility?

“SEC. PURISIMA.. Yes.

“SEN RECTO. Yes. Okay.  x x x. . You should because at
12 percent, you are willing.  So at 10, you are
willing as well.  Right? Okay.  Same thing with 11.
Same thing at 12.  Are you proposing at 12 percent we
reduce excise taxes or 11 percent we reduce excise
taxes or not?


“SEC. PURISIMA. Sir, let me x x x   Before I answer
your question, point out to the fact that the gravity
of our financial situation is such that this measure
whether it generates 60, 80, 90 or a 100, is not
enough to close the hole we are in.  And therefore, I,
as Secretary of the Department of Finance, would be
more than willing to accept a version that generates
more revenue because that accelerates the
consolidation of our problem.  As to our willingness
to accept the political responsibility for the cost of
this - - yes, because the option on the other side if
we don’t do anything will be more costly for our
consumers.  As I mentioned in the session last week, 2
percent increase in VAT is just equivalent to a P2
depreciation of the peso, two at the peso exchange
rate.  And if this problem is not dealt with, the peso
will depreciate more than P2, more than the cost of a
2 percent increase in the VAT rate.  So, that’s why,
we’re willing to accept the burden, sir. x x x” (TSN,
Dizon, IV-1, 12:20 pm, pp.6-7 up to TSN, Alger, V-1,
12:30 pm, p.1)

13.  May 09, 2005, SP Drilon’s press release in the
Manila Times:

“Passing the VAT bill will help close the gaping
fiscal deficit.  We just have to pass this VAT to
serve the purpose of this taxation, that is to collect
enough taxes so that we can provide services to our
people”.

14.  May 09, 2005, statement of Asst. Secretary Gil
Beltran of DOF in the Business World:

“Underscoring the urgency of the VAT bill, Finance
Assistant Secretary Gil S Beltran said every day of
delay in the passage of the measure is costing the
government P167 billion to P222 billion.”

15.  May 12, 2005, press statement of Undersecretary
Bonoan in the Business World:

“The bill would even increase VAT collection
efficiency beyond the current 70% with the scrapping
of exemptions”.

16.  May 12, 2005, press statement of Secretary
Purisima in the Business World:

“The VAT bill would let the government keep its budget
deficit this year to below P180 billion.  For next
year, the deficit ceiling is P161 billion, or 2.7% of
gross
domestic product.”

17.  September 02, press statement of GMA in the
Philippine Daily Inquirer:

“Malacañang rejected anew proposals from legislators
of both chambers of Congress to defer the
implementation of the value-added tax law on fuel and
electricity.  President Gloria Macapagal-Arroyo has
remained bullish on implementing the crucial law once
the Supreme Court decides to lift the freeze order on
e-VAT.”

18.  September 03, 2005, statement of Renato Pizarro of
BSP in the Philippine Daily Inquirer:

“The financial markets Friday cheered the Supreme
Court’s affirmation of the constitutionality of the
expanded value-added tax (VAT) law, the single biggest
tax measure needed to keep the government on track
with its program to reduce its budget deficit and
debts.

This improves confidence in the country’s ability to
pursue its fiscal program “

19.  September 07, 2005, DOF statement in the
Philippine Daily Inquirer:

“Oil prices will further increase by an average of 6.4
percent when the expanded value-added tax (VAT) law
takes effect.”

20.  September 11, 2005, DOF Secretary Teves statement
in the Philippine Daily Inquirer:

“The Department of Finance said the national
government’s debt would likely go down to only 50.5
percent of the country’s gross domestic product by
2010.  This projection was made following the Supreme
Court’s decision upholding the constitutionality of
the Value-Added Tax Reform law and on the assumption
that the law would be implemented soon.”.

21.  September 16, 2005, GMA’s statement in the
Philippine Daily Inquirer:

“President Gloria Macapagal-Arroyo is not at all
worried even if Congress succeeds in deferring the
implementation of the expanded value-added tax (VAT)
on petroleum products and electricity, saying it would
not affect the government’s goal to reduce the budget
deficit.

In fact, she said, the VAT on fuel products and
electricity were not included in the proposal that
Malacañang submitted to Congress.

She said she only asked for P80 billion in revenues
from the new tax measures, but revenues from the VAT
law was estimated at 120 billion pesos.”

22.  September 17, Usec. Bonoan’s statement in the
Philippine Daily Inquirer:

“The government will have to trim its proposed
P1.09-trillion budget for 2006 if the plan to exclude
oil and electricity from VAT pushes through.  Finance
U/Sec Emmanuel Bonoan told reporters the proposed
budget already incorporated in it the entire P86
billion worth of expected incremental revenues from
the VAT reform law”

23.  September 18, 2005, GMA’s press statement in the
Philippine Daily Inquirer:

“President Macapagal-Arroyo yesterday reiterated her
stand that the Expanded Value-Added Tax Law be
implemented fully amid proposals from legislators to
defer the 10-percent VAT on oil and electricity.

The new revenue law should be implemented in its
entirety if we are able to achieve our economic reform
and deficit reduction goals in a timely manner.

But she cautioned Congress that if it should decide to
exempt fuel and electric power from VAT, then we hope
they will seriously consider the significant
implications for our country in the international
financial markets and limit the scope of these
exemptions.”