A court decision that reversed an executive order on the imposition of tariffs on intermediate petrochemical resins could result in loss for the Philippine Government amounting to an estimated P2.5 billion in potential government revenues.
The BoI has pointed out the negative impact on tax revenue generation, industry competitiveness and employment following last year’s injunction issued by the Makati Regional Trial Court in August over the implementation of Executive Order 486, which reduces the tariff rate to 5% from 10% on raw materials imported from ASEAN for the manufacture of plastic products resins of polyethylene (PE), polypropylene (PP), polystyrene (PS), and polyvinyl chloride (PVC). The suspension of EO 486 has also created a tariff distortion because the tariff on finished plastic products has been brought down to 5% as against the 10% tariff on resins, the raw materials of the downstream plastic manufacturers for the production of plastic products. The tariff distortion has only benefited the Association of Petrochemical Manufacturers of the Philippines or the midstream petrochemical players particularly, the polyethylene and polypropylene operation of JG Summit Petrochemical Corp., which produce the polymer resins used in the production of finished plastic products.
Based on the BoI study, the higher tariff on raw materials imports will result in a 20% drop in production due to lower volume of importation resulting in import duty losses of around P399 million this year. The estimated losses in duties are based on the 2007 industry figure wherein they reported increased production of 566,000 metric tons, 25% up versus 2006, as a result of increased importation due to the lower tariff rate of 5% at that time. The figure also assumed that 39% of the country’s total imports of resins come from ASEAN. The Philippines imported import US$796.27 mln of petrochem products from ASEAN and exported only US$57.46 mln, reflecting a negative trade balance of US$738.81 mln. Total imports from the world in the same six year period reached US$2.09 bln while the country’s total export to the world was only US$255.24 mln. The study also estimated P2.044 billion losses in value added tax from sales of locally-manufactured plastic products.
The industry estimated that every peso worth of raw material (resin) generates P2 worth of sales. The losses are based on the local industry estimated foregone P8.513 billion in potential sales of finished goods due to lower production. Multiply this by P2, this would amount to P17.03 billion and the 12% VAT would result in government foregone revenues of P2.044 billion.
In terms of competitiveness, the downstream plastics industry has shown its competitiveness against imports in 2007 when tariff of resins was brought down to 5% from 10% when the government implement EO 486.