Transcript of interview with Senator Mar Roxas on ANC's 'Dateline'

On the Palace's nixing of Sen. Roxas' proposal to suspend VAT on oil products:

Q: The President is lowering tariffs on oil importation, which will lead to a 50-centavo reduction per liter in fuel prices and P11 billion in foregone revenue. What do you think of that?

MAR: Not enough, inadequate, tokenism. The government has to get ahead of the curve. Oil prices have reached $100 a barrel at the New York Mercantile Exchange. All the analysts say that this will be the new band or the new area where oil prices are going to be. The time of $30-$20 oil is going to be long gone already. This is the new reality we have, and this tariff cut is simply not gonna make it. Admittedly it's a good start, and when Congress is not in session, this is all the executive can do, adjusting tariffs. But I would say, let's change the law. I've been saying this for some time now. Let's take the VAT away from petroleum products.

Q: How does your proposal translate in savings?

MAR: In the present oil prices, a reduction of 12% VAT would translate to P4 per liter for diesel or more than P60 for an 11-kilo LPG tank. So these are huge savings, it's enough scale to actually modify consumer behavior, to actually have an impact in the broader economy. Second, government will not actually lose this. Whatever you save in a 40-liter tank, that's P160, when you go out and buy Jollibee or McDonald's or something, there's a VAT on that right away. So government will also catch it, in the next go-around. They will capture it. The point is, the government is being lazy about it. They only want to talk to three oil companies, when they should be collecting this from every store and enterprise that sells to the people. This is going to have a cash-flow impact, rather than a real collection impact.

The price of diesel right now is P38.50 per liter, the VAT component of that is P4. It becomes P34, with P4 straightaway saved. With LPG, it's almost P65 per tank. There's going to be real savings for the people, and they will also spend. And with that point of view, it's not going to be a loss to the government.

Q: Are you concerned that the savings won't actually happen because the oil companies will say they have underrecoveries and find some reason not to lower prices?

MAR: No, because the VAT is on top of whatever their pricing is. Whatever their pricing is, the VAT is automatically removed from that.

Q: And if they fiddle around with it, that could be checked?

MAR: That's right. More importantly, the earlier news said oil companies were looking at another P3 of uncaptured increases yet, meaning the inventory levels that are being reflected by the pump prices today are based on $85/barrel oil. Oil is now in the $90s range, and the companies might have another P3-P4 of unpassed-on increases. So 50 centavos is not going to be much. That's not going to substantially change the quality of life of a housewife, of a driver, of someone in the transport sector, anybody delivering eggs, vegetables, fish or manufactured products.

Oil is one of those things that are present in nearly every product, either because of the transport or the raw material - plastics really come from oil as well. The point is, by taking out the oil VAT component in pricing, you'll be able to help the entire economy across the board without the government really suffering because all of the savings of the consumer will be captured subsequently.

Q: The government is concerned about the revenue loss in the immediate term. Are we going to see a reduction in collections overnight?

MAR: I'm not worried about that. We have in excess of a P5-trillion economy, the government budget is P1.3 trillion, we're looking at budget equality, no deficit for this year. So P20-P30 billion is nothing in the bigger scheme of things. Second, this is not government's money. This is our money that the government is taxing. When government was in trouble during the fiscal crisis, we passed the VAT to help the government. During that time, our deficit was in excess of P200 billion a year. At the time, oil was at $30 a barrel. Today oil is at $100 a barrel, and the government deficit has now evaporated, it's now in fiscal balance. So I think there's a whole new set of policy put in place so that we can reflate the economy, the spending power of the people during these difficult times.

Q: The collections are going to be something they have to find somewhere else, right?

MAR: First of all, we can make the collections much more efficient. Second, why are they passing on to us the problem of their ineffectivity, their inability to perform their duty. They're saying, 'we cannot do our task, therefore we'll put this VAT first on oil products.' Let's turn the equation a little bit. Do your job well, give back to us our money because we need it at this time. When oil prices go back to normal, we can give this back to the government, should another amendment to the VAT law be passed.

The proposal is very straightforward. We amend the VAT law, we take oil products away from the coverage of VAT, give it a zero-rating. The proposal right now is temporary, but we can make it permanent or put in a formula, but that will be threshed out in committee. By the way, Senator Chiz Escudero, chairman of the Senate ways and means committee has supported our proposal and in short order will call hearings in this regard.

Right now, we're saying it's time-bound, six months. It could be a year. Others who may have a projection where oil prices might be may put in a formula, we'll be open to take a look at that. Let's address this, while we have the time to do it. If we look at the broader economy, it's consumption-driven, the resiliency of the economy has been in consumption.

As can be seen in the auto report, there's been an extra 17,000 in car sales. Usually, the car industry sells about 90,000 a year, and now it's 107,000. The OFWs have been bringing money here, and investing in real estate. If we look at the demand side, OFWs lost P15 to a dollar in the past year and a half or two years. If we take a look at the expense side, oil has gone up, from P15 per liter, to P38 per liter for diesel. So consumers are getting squeezed, because OFWs' dollar translates to less pesos and higher expenses because of high oil prices. These conditions may lead our economy to a risk later on to a deflationary dynamic. Right now, the government can say, 'let's remove VAT. Let's get ahead of this curve. We pump back in effect the 12% VAT on oil back to the economy, we give some relief. People are going to spend this, and when they do, the government will get it back anyway. The only challenge to government is to do what it ought to do anyway, which is to be an efficient collector of the tax. Instead of talking to three oil companies, the government will talk to SM, Robinsons, Gaisano and any other establishment to collect.

The conditions have changed. The sickness of the economy four years ago was fiscal crisis. And so we solved it. Now, the economy and the circumstances in the world have changed, so that's no longer our illness. To keep applying the same cure to a sickness that is no longer present is wrong policy. The sickness now is the very, very high cost of living, principally brought about by $100 oil.

So this is something that the government can do. I totally reject that government cannot do anything. Obviously not, they've been able to cut tariffs by 1%. By the way, they could have cut it by 3%. Now, the government could also say, let's go on, let's push, let's amend the law and take away VAT from petroleum products.

I myself am concerned with the fiscal problem, but what I'm saying is, that's not our problem today. Our budget deficits were at P250 billion to P260 billion a year. We are now at zero. Let's assume the direst prediction that it's [VAT on oil] not collected properly. So for the country to have a P30 billion deficit in December of 2008, it's no big shakes in the bigger scheme of things.

Q: Why not re-regulate the oil industry?

MAR: Much more complex. Much more complicated. By reimposing subsidies, what are we actually saying? What we're saying is 'let's reimpose subsidies, let's collect the money in taxes, then let's pay off the oil companies not to collect too much.' It's still the same! So the point is, [with suspending oil VAT] I'll not collect the tax, period.

Subsidies are not fair precisely because government is the one spending it. If the money stays in the pockets of the people who earned it, that's fair, they're the ones who earned it, and they can now prioritize. Some of them will spend it for tuition, others would spend it for food, others would use it to pay interest on a loan. But it's their money, and they get the chance to spend it. Versus the present, which is the government taking it and then deciding where to spend it.

Q: What about the issue of losing P20 to P30 billion?

MAR: Number one, P20 billion in a nearly P6-trillion economy is nothing. Number two, the government's inability to collect tax. The government can wipe that loss out if they become efficient, if they actually collected what could be collected. And thirdly, most importantly, it's not lost! When you go out and go to a fastfood place and buy lunch, there will be VAT there, so they can collect it.

Q: Incidentally, there are estimates that if government collected excise taxes on tobacco and alcohol properly, they could collect about P25 billion.

MAR: That's another reason, that's another argument. But for me, since you're smoking, since you're drinking, then you pay for your vice. But this is fuel, this is not a vice, this is not voluntary, this is a part of life, it's a necessity. My point is, here's something that the government can do. Let's do it fast, let's do it with scale so it's not 'tingi-tingi.'