Oil smuggling bared: 4 billion liters untaxed in '07

By Angie M. Rosales - Tribune.net

Finance and Energy officials yesterday virtually confessed to the existence of oil smuggling in the country as opposition Sen. Francis Escudero noted that four billion liters of oil have been unaccounted for last year as far as the imposition of value-added tax (VAT) on this product goes.
Escudero said data provided by the Department of Finance (DoF) and the Department of Energy (DoE) showed the discrepancy in figures vis-à-vis the yearly consumption volume of 12 billion liters that have been imposed with tariffs proved to only amount to eight billion liters.

"That's four billion liters untaxed. And assuming this to be at P3 per liter based on VAT imposed, that's already P12 billion down the drain without even computing the excise tax, tariffs and even income taxes," Escudero, chairman of the Senate ways and means committee, told reporters after conducting a hearing into the proposed suspension of VAT on petroleum products.

Inquiring into the documents submitted by the two agencies, Bureau of Internal Revenue (BIR) officials claimed their collections represent only 8.7 billion liters while Bureau of Customs (BoC) officials said almost P20 billion worth of imported crude oil came into the country last year.

"Our collection in terms of VAT for petroleum products is (at) P17.28 billion while for crude oil, we have collected VAT of P28.9 billion and this is what we reported to DoF and to the President (Arroyo), in terms of the collections of BoC for VAT as an agent of the BIR," BIR Assistant Commissioner James Roldan told the committee.

Escudero pointed out that the President herself admitted that she had instructed the Presidential Anti-Smuggling Group (PASG) to run after oil smugglers and probe the existence of the alleged illegal activity.

DoF planning division director Ma. Teresa Habitan that it is only now that they realized this as the volume of consumption last year appeared that the figures were within the limits of inventory.

"We're awaiting the final outcome for 2007. It's only now that it came out, the 2007 full-year data and we'll compare it," she said adding that the figures being cited by Escudero are those that they noted fell within the limits of the refinery and inventory losses which would equal to the bulk of imported oil that came in last year.

"According to the data of BoC, they imported a total of 6.1 billion of refined petroleum products or without the LPG, that would be around 5.2 in liter terms. These are already taxed or VAT-ed at the ports so that does not come in as taxable commodity at the BIR side. What the BIR has reported comes from the domestic manufacturers. The BoC also collected importation of about 13.4 billion liters of crude oil and this is what is refined by domestic manufacturers and that would translate to net of refinery loss and the inventory (loss) into what is reported by the BIR as 10.2B removals in terms of liters," she explained.

"They're inept, to begin with because they themselves, it's at the finger tips of their own data and records and yet they can not compute backwards or forward how much should be accounted for," Escudero said.

"Whichever way you look at it, there remains an accounted three to four billion liters by the DoF and as to where this went, there's no record to show it," he added then stressed: "They're not only inept, I think the government has been negligent on this matter because of so many loopholes in their statements on why they failed to detect this…The two revenue-collecting agencies, BIR and BoC don't coordinate with each other and it seems it's only now that they are acting on this matter," said Sen. Manuel Roxas during a briefing with reporters after the proceedings.

BoC Commissioner Napoleon Morales Jr. told the panel that it is only recently that they entered into a memorandum of agreement with the Subic Bay Metropolitan Authority (SBMA), where oil smuggling in the free port area is massive, to curb the illegal activity.

"There will now be computer linkages bet SBMA and ours and so Customs will now know what are the volumes of petroleum products being sent through PEZA and tax exemptions…I think it will be finished by February this year," Morales said.

"So prior to that you were not aware (of ongoing oil smuggling?" asked Escudero.

"In the case of SBMA, this is a free port, and the only thing Customs acquired jurisdiction of is once it is outside customs territory," Morales explained.

"But it does not mean, all a free port means is that you do not impose a tariff but it does not mean you cannot monitor, isn't that so?" asked Roxas to which he was given an affirmative answer by the BoC chief.

"You see, in free ports, there is an indeed DoJ opinion on this, that any importation made by free port is not considered as importation. The tariffs and customs code only applies when the goods are being transferred to customs territory. This is why we have an MoA with SBMA," Morales said.

"Are you saying that that the DoJ itself is sabotaging anti-smuggling efforts?" Roxas asked.
The BoC chief insisted that was the law, and that Customs has no jurisdiction there.

At the same time, major oil companies can not be made to bring down prices even if there will be a suspension on imposition of value-added tax (VAT) on petroleum products because of the existing deregulated market.

Senators were made to realize this yesterday by major oil players yesterday during the continuing public hearing on proposed zero percent VAT transactions on petroleum products to cushion the impact of continuing rise of crude in the world market.

This means the proposed legislation being pushed by Roxas could be an exercise in futility.
Under interrogation by Roxas and Escudero, Shell Philippines President Edgardo Chua said that under the present legal system where oil prices are deregulated, they are cannot be compelled to automatically reduce prices even if Congress passes into law the proposed suspension of VAT on petroleum products.

"You are not obliged to do it, would that be correct? So you can decide to reduce it by 50 percent of what is the amount of VAT or more than the amount of VAT?" asked Escudero pursuing Roxas' line of questioning during the hearing.

"When it comes to tax, it's a pass-on. We are just a collecting agent. So whatever tax the government imposes, that's what we carry," Chua told the committee.

Some senators, Roxas in particular, is pushing the suspension of VAT on oil to ease the plight of the people faced with a weakened purchasing power of the peso.

Roxas earlier filed Senate bill No. 1962 which seeks to treat oil and petroleum products as zero-rated products for a period of six months, effectively suspending the 12 percent VAT on these products or an estimated savings of P4 per liter of diesel and P65 for an 11-kilo tank diesel and foregone revenues due to moratorium.

"It's like this. Our selling price has numerous components – tax component, cost of product etc. – so if we put aside the tax since as I've said we're just a collecting agency, the final price, there could be other attributing factors, could be higher or lower than the tax relief," Chua said.

"It can't be straightforward, if in the event that there will be a reduction of VAT to the amount of P4.62 per liter, if this becomes law, you're not obliged to effect this?" asked Escudero.

Chua replied in the positive, stressing that the industry is deregulated.

The Shell executive also said that even the DoE can not prevail upon them in setting their rates as final price in a deregulated industry is dictated by the market or by the competition.

Roxas, however, found this unacceptable pointing out that oil prices will effectively be reduced once tariffs are lifted.

"There are other elements to pricing. If we can reduce the prices by P4 for at least a month and then it will be imposed, it would not be an act by the government. Under the Price Act, you're supposed to separate their price from the VAT. So if this ( P4 per liter VAT on oil) will be lifted, the there will be a corresponding lowering of price by P4," Roxas insisted.

The senator said that they would also look into the Oil Deregulation Law in view of the position aired by the major oil companies.

In the same hearing, finance officials flip-flopped on their position regarding actual figures as far as losses in revenues once the proposed suspension on VAT in oil products is approved by Congress, admitting that it would translate to some P30 billion and not P54 billion as earlier claimed by them.

Both Escudero and Roxas assailed officials from the Finance department as they managed to extract this information from them in the course of the proceedings.

"They gave us conflicting figures, only to admit in the end that what they have been claiming during the past couple of weeks as P54 billion in foregone revenues (if this proposal pushed through). This morning, in our hearing, it trimmed down to P30 billion," Escudero said.

"It was shown in the hearing that the so-called 'doomsday scenario' where there will be an economic instability or effect in our fiscal strength is without any basis as the DoF officials themselves say that there will only be a foregone revenue of P30 billion and this does not include in their calculation the savings that will be accumulated within the year," Roxas said.

"If only the government will do its job, P30 billion would not be a big issue. It will restore to the public who in return, will be able to spend it on their other needs which means the government collecting it as VAT on other forms of commodities," he added.