VAT windfall expected from higher oil prices A WINDFALL of around P4 billion could be realized this quarter by the government as higher oil prices lead to increased value-added tax (VAT) collections, a Finance official yesterday said. The amount, which could rise to some P28 billion if crude prices remain high, is expected to allow the government to fund planned subsidies that will allow the public transportation sector to cope with rising fuel costs. "As long as the volume of oil we purchase doesn’t go down, the government can usually get a windfall of roughly P1 billion for every $1 in excess of the programmed cost of oil," Finance Undersecretary Gil S. Beltran told BusinessWorld. While the numbers are not yet final, Mr. Beltran said, "The VAT windfall could reach P4.4 billion by end-March." With the benchmark Dubai crude now averaging $108 per barrel, up from the government’s oil price assumption of $80 per barrel for the year, the additional earnings from import duties would total some P28 billion. "Yes, that’s my estimate," Mr. Beltran said. "The excess VAT can be used for any project that’s the priority of the government," he added, including P600-million fuel subsidy targeted at the public transportation sector. "Based on the pronouncements of the DoE (Department of Energy), financial assistance to the public transportation sector is counted as one of the priorities," Mr. Beltran said. An Energy department-drafted executive order that will implement the subsidy -- involving the issuance of fuel cards that will be valid for a month -- has been submitted to Malacañang for approval. The assistance, currently limited to legitimate franchise owners, could be extended to other transportation used by the food and fishery sectors, Energy officials have said. A VAT windfall was also realized by the government when oil prices spiked to a record $147/per barrel in 2008. The added earnings of P8.16 billion from July to December 2008 was spent by the Arroyo administration on "Katas ng VAT" programs such as electricity subsidies, student loans, scholarship grants and engine conversion loans for owners of public utility vehicles. University of the Philippines economist and former Budget secretary Benjamin E. Diokno welcomed the news of a new VAT windfall trickling down to consumers, but cautioned against "inefficiencies". "By subsidizing public transport, half-empty buses and jeepneys would continue to traverse their routes as if the price of oil products have not increased; such practice is inefficient. Passengers should feel the higher cost of transportation so they will change their behavior accordingly," Mr. Diokno said in an e-mail. "What about the car owners who have to pay the higher costs of oil products at the pump? Don’t they deserve a subsidy too?" he said. Mr. Diokno, Budget secretary during the Estrada administration, instead proposed a VAT cap when the price of crude exceeds a certain level. "The idea is for the government not to benefit in terms of a windfall gain even as consumers suffer from higher than planned price of crude oil," he said. He also suggested an automatic surcharge when the price of crude plummets. "Consumers should not get used to artificially cheap oil products when the price of oil plummets to, say, $60 per barrel. The surcharge will be in the form of a corrective tax," Mr. Diokno explained. |
U.S. Stocks Advance as S&P 500 Extends Best 1Q Gain Since 1998 U.S. stocks rose, extending the biggest first-quarter rally in 13 years for the Standard & Poor’s 500 Index, as a report showing companies added more workers in March bolstered optimism about the economy. Cephalon Inc. (CEPH) surged 28 percent for the biggest jump in the S&P 500 after Valeant Pharmaceuticals International Inc. (VRX)offered to buy the maker of sleep and pain drugs. Visa Inc. (V) climbed 2.8 percent on speculation that curbs on debit-card fees will be delayed or modified. AT&T Inc. (T) rallied as its chief executive officer pitched the company’s acquisition of T-Mobile USA as a way to boost network capacity and improve service. The S&P 500 gained 0.7 percent to 1,328.26 at 4 p.m. in New York and is up 5.6 percent for the first quarter, which ends tomorrow. TheDow Jones Industrial Average increased 71.60 points, or 0.6 percent, to 12,350.61 and has rallied 6.7 percent so far this year. The Russell 2000 Index of smaller stocks rose 1.3 percent to 840.28, the highest level since October 2007. “Given the beginning of a strong cyclical recovery in the U.S. and a tougher environment in many of these other international markets, it seems to us like a good place for investors to be,” said Connor Browne, who oversees about $5 billion as co-manager of the Thornburg Value Fund at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “We’re positively inclined toward valuations and fundamentals for the U.S. market.”
Bonds rose earlier as a private report before the Labor Department’s payrolls figures on April 1 showed companies added fewer jobs than forecast. U.S. debt dropped yesterday as Federal Reserve Bank of St. Louis President James Bullard said policy makers should consider ending purchases of Treasuries earlier than planned under its quantitative easing policy. “The general message one takes away is that there is still strong demand for Treasuries from foreign investors at these levels, especially in the intermediate sector,” said Anshul Pradhan, an interest-rate strategist in New York at Barclays Plc, one of the 20 primary dealers obligated to bid in U.S. government debt sales. The yield on the existing seven-year note dropped six basis points, or 0.06 percentage point, to 2.84 percent at 5:28 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.75 percent security maturing in February 2018 increased 11/32, or $3.44 per $1,000 amount, to 99 13/32. The seven-year note yield earlier touched 2.92 percent, the highest level since March 9. The nine consecutive days of gains ended yesterday made up the longest losing streak for the maturity since the government resumed selling it in 2009 after a break of almost 16 years. The benchmark 10-year note yield fell five basis points to 3.44 percent today. |
Crude Oil Falls in New York After U.S. Inventories Rise More Than Forecast Crude oil dropped after a U.S. government report showed a larger-than-forecast gain in supplies as fuel demand declined to the lowest level in four months. Oil fell 0.5 percent as inventories climbed 2.95 million barrels to 355.7 million last week, the Energy Department said. Stockpiles were forecast to rise by 1.5 million barrels, a Bloomberg News survey showed. Fuel demand dropped to the lowest level since November as gasoline consumption decreased to 2.1 percent less than a year ago. “The U.S. market is very well supplied,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin,Texas. “Gasoline demand is now lower than it was a year ago, which may be a signal that higher prices are starting to hurt consumers.” Crude oil for May delivery declined 52 cents to settle at $104.27 a barrel on the New York Mercantile Exchange. Futures are up 27 percent from a year ago. Oil volume on the Nymex was 496,986 contracts as of 2:36 p.m. in New York. Volume totaled 448,466 contracts yesterday, 45 percent below the average of the past three months. Open interest was 1.52 million contracts. “The lack of volume shows a real lack of commitment to bid the market in either direction,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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