Action for Economic Reforms (AER) refutes the claim of House Ways and Means Chair Representative Joey Salceda that the crude oil refining industry makes up 5 to 6 percent of our country’s gross value added (GVA) in manufacturing.
In a statement published in BusinessMirror on February 22 (“Salceda defends CREATE perks for local oil refineries”), Salceda “noted that the crude oil refining industry contributes around 5 percent to six percent of the country’s total gross value added in the manufacturing sector.” This was Salceda’s defense of the provisions inserted in the bicameral conference committee of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill which exempt local refineries from paying taxes and duties on local crude oil imports.
These tax breaks were inserted in an attempt to prevent the permanent shutdown of the Petron refinery in Bataan, the last remaining oil refinery in the country, which has been suffering from weak refining margins. Salceda argued that the tax breaks will level the playing field for direct importers of finished petroleum products and local crude oil refiners, and that we would stand to lose 5-6% of gross value added in manufacturing should the Petron refinery close down.
Salceda posited that crude oil refining makes up 5-6% of our gross value added in the manufacturing sector. However, the gross value added of oil refining in the manufacturing sector is actually only 2.7% as of 2020 and has been on a steady decline for several years now. Oil refining only contributes around 0.6% to our gross domestic product (GDP).
Petron is not a vital corporation that deserves tax breaks, as shown by its measly contribution to the gross value added of the manufacturing sector. Furthermore, the tax breaks inserted in CREATE will not keep the refinery open in the long run, as the shutdown of our oil refineries is not due to the tax regime, but due to our lack of economies of scale to be competitive in oil refining. Our country also needs to wean itself away from fossil fuel, as the rest of the world lowers its carbon footprint and shifts to renewable energy.
We call on President Rodrigo Duterte to exercise a line item veto on the CREATE provisions giving tax breaks to local crude oil refiners and inserting crude oil refining in the Strategic Investment Priority Plan (SIPP). These misguided insertions give undue advantage to one company and run counter to CREATE’s objective of making incentives transparent and economically justifiable.