“Crude oil refining as an industry contributes around five to six percent of the total gross value added in manufacturing in the country. Shift demand to direct importation and we lose this value-added nearly entirely,” said Salceda in a statement.
“I’ve heard various arguments and accusations against our position, but nobody has answered this question: can we afford to lose five to six percent of GVA (gross value added) during the year of our worst GDP (gross domestic product) performance?” he added.
Salceda said the refinery industry contributes between P100 and P140 billion a year.
“It fell to an all-time low of P83 billion due to the pandemic,” said Salceda.
Salceda, the House ways and means committee chairman, is reacting to the statement of the think-tank Action for Economic Reforms (AER) which called the move to save oil refining through tax exemptions in the Corporate Recovery and Tax Incentives for Enterprise (CREATE) bill as “more of an emotional reaction than it is a sound economic policy.”
AER cited the exemption granted to local petroleum refineries from paying taxes and duties on crude oil imports and inclusion of crude oil refining in the Strategic Investment Priority Plan (SIPP) as unfair to oil importers AER is lobbying President Rodrigo Duterte to veto these provisions.
But Salceda said these provisions inserted in the CREATE bill during the bicameral conference have made the tax reform fairer contrary to AER’s position.
“Because refiners have to pay VAT (value added tax) both at the crude importation stage, and at the removal from the refinery, they are eligible to claim input VAT credits. Here’s the problem: because the money passes through tax administration, refiners have to wait for years to claim credits that at any time reaches 7-10 billion pesos,” said Salceda.
“Direct importers do not have that problem. It’s unfair when any business has billions of its own money help-up, while its competitors do not have to. As a result, it has become more attractive to import than to generate value-added and create jobs here,” he added.
Salceda noted that direct oil importers not only have minimal contribution to the economy (in terms of jobs and services generated), they are more prone to smuggling or burning a big hole in the government’s revenue collections.
“It’s easier to smuggle if you’re a direct importer, because there is no fuel marking at the freeport zones where they usually have their terminals. It’s harder, if not impossible, to smuggle if you’re a refiner, because you are checked at the crude importation stage, and at the point of removal from the refinery,” said Salceda.
Salceda the provisions adopted in CREATE were the common practice in Singapore, Malaysia, India, Thailand and most other neighbors.
“Only tax petroleum once refined, so that the playing field is fair to both direct importers and refiners. I said no to any proposal from stakeholders and colleagues alike to give revenue-negative exemptions for the industry. There were proposals on property tax exemptions and withholding tax. I turned them all down. But I could not say no to proposals that make economic sense,” said Salceda.
San Miguel Corporation’’s Petron is the last firm to have a refinery in operation after Pilipinas Shell decided to shutter its 58-year old Batangas refinery last August and shift to 100 percent importation.