Albay 2nd District Representative Joey Sarte Salceda says the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, ratified on Thursday by Congress,’ probably saved 3,000 jobs in the refining of crude oil,’ as it levelled the tax treatment between the country’s direct importers and petroleum products refiners.
Salceda, principal author of the House reform, says that the reform would alleviate the concerns of some 3,000 employees working at the country’s last refinery. The Bataan refinery at Petron is the only crude oil refinery left in the Philippines after Shell closed its refinery last year because of rising refining costs.
“Earlier in 2020, Petron was very transparent in saying they need a fairer tax treatment or they will have no choice but to shift to direct importation, which will cost us thousands of jobs and hit our energy security. It is very difficult for a net importer of oil not to have a refinery, especially in times of disasters or conflict,” the House tax panel chair said.
“What I told them publicly was this: Send a proposal, and I’ll take it up if it’s reasonable. During the House’s discussions prior to CREATE bicam, we received proposals. I said no to new tax exemptions that would erode revenues. But I couldn’t say no to provisions that made tax treatment fairer simply because they made economic sense,” Salceda said.
Under CREATE, taxes on crude will not be enforced, and VAT and duties will only be enforced once the refinery has been removed. Direct importers would also be unable to benefit from CREATE’s tax benefits because of their low added value.
“The problem was this: Under current law, we tax both crude and refined petroleum. In the process, billions of pesos get stranded in VAT credits, because our tax administration is not yet efficient. That is cash that the refiner is unable to use to average down when global crude prices are cheap. Direct importers do not have that problem. We are rewarding direct importation even if they produce less gross value added than crude oil refining. That doesn’t make sense to me,” Salceda added.
“We are in fact the only major country in the region to treat crude oil and refined petroleum products the same way, in tax terms. The best model, of course, is Singapore, which fences refiners, and only taxes them once you remove oil products from the licensed area. That makes perfect economic sense,” the House tax panel chair explained.
Energy security, infrastructure to benefit from refining
“Of course, in the long run, I want to phase out the use of fossil fuels. But not yet at this phase of our development,” Salceda said.
“It doesn’t make accounting or economic sense to have to import very low value petroleum products like asphalt for Build, Build, Build. Having a local refiner means we have that available domestically. Having a local refiner means we can more easily phase out coal and move to diesel in our power supply, a much cleaner if still imperfect move,” Salceda explained.
“The key really is that we can average down when crude prices are low. That is very important to energy security,” Salceda added.
“We are one of the largest non-oil producing economies in the region. We expose ourselves to plenty of risks if we will disincentivize refining. That’s not good economic or national security policy, in my strongest view,” Salceda concluded.