MANILA (UPDATE) — Finance Secretary Benjamin Diokno on Tuesday said suspending the collection of excise taxes on petroleum products would cause "huge damage" to the economy.

House Speaker Martin Romualdez has asked oil companies to slash oil prices amid the soaring fuel prices. He also recommended the suspension of fuel excise tax collections to President Ferdinand Marcos Jr.

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But Diokno warned that the government would lose billions in revenue if it suspends VAT and excise tax on fuel. Revenue losses may reach P72.6 billion for the last quarter of the year, he said, or 0.3% of the country's Gross Domestic Product (GDP).

In a separate statement, he said the revenue loss may reach P41.4 billion in excise taxes and P32.2 billion in value-added tax (VAT).

"Unang-una pag tinuloy mo 'yan, ang mawawala sa gobyerno — sabihin ko na ang numero — P72.6 billion for the 4th quarter lang 'yan, last quarter ng 2023," Diokno told TeleRadyo Serbisyo.

"Kung kabuuan naman — sa whole year of 2024 — aabutin ng P280.5 billion ang mawawala sa gobyerno."

The finance secretary said that would translate to lost funding for government programs, including social safety nets. These revenues, he said, were already expected to be collected under the 2023 budget.

Suspending taxes on fuel would also have a negative impact on the country's debt, credit rating, and programs, Diokno added.

"Napakalaki ng negative consequences niyan sa ekonomiya kasi naka-programa na 'yan sa gobyerno," he said.

It will also "increase the risk premium for government borrowings," which he said would result in potentially higher debt.

"Private sector borrowings will become costlier and have a negative impact on private investment and economic growth," he said in a separate statement.

"Higher borrowings now will further increase our interest payments and deficit in the future, while reducing fiscal space for crucial social and economic programs,” he added.

PROPOSAL 'ILL ADVISED, POLITICALLY UNPOPULAR'

In the same statement, the finance chief described the proposal as "ill-advised" and short-sighted.

The proposals to suspend fuel taxes would only benefit the "top 10 percent" of households that consume some 49 percent of fuel, he said.

"The bottom half of households consume only around 10 percent," he said.

Diokno said while the removal of taxes "is a popular move" for politicans, "it is politically unpopular" due to its impact on fiscal sustainability.

"Legislation takes time. Once the elevated oil prices subside, it may not be easy to restore taxes on oil product. It is politically unpopular. That’s the political economy of tax legislation," he said.

What is feasible and workable, he said, would be the timely and targeted distribution of fuel subsidy pegged at P3 billion for this year.

'TARGETED ASSISTANCE' TO FILIPINOS MOST AFFECTED BY CRISIS

Diokno noted that when oil prices skyrocketed last year because of Russia's invasion of Ukraine, the government did not suspend tax collections because of the potential loss to collections.

Instead, he said, the government provided targeted assistance like fuel subsidies to farmers and drivers, which he called the "best strategy" recommended by the International Monetary Fund.

"Pagka binawasan mo iyan tinanggal mo iyan pag nag-normalize 'yung [presyo] hindi naman madaling magbalik eh 'yun ang malaking kawalan sa gobyerno," he said, arguing that it would be mostly the rich who would benefit from suspending oil taxes.

Asked whether he would be willing to oppose a proposal to suspend fuel excise tax collection even if it is backed by Speaker Romualdez, Diokno replied: "As a member of the Cabinet, it is my responsibility to give the best advice to the president. Di naman puwedeng 'yes man' ka lang."

He added that it is their responsibility to take caution in policies that could affect the economy and "negatively impact the macro-fiscal stability and sustainability of the country."