By IRMA ISIP

Top business groups yesterday said any type of subsidy on oil will hurt government finances, alter consumer behavior and investor choices.

The Makati Business Club, the Management Association of the Philippines , and the Financial Executives Institute of the Philippines pointed out the proposal to suspend temporarily the value-added tax (VAT) is a sign of policy flip-flopping that could lead to a possible credit downgrade.

"Price subsidies are inappropriate as they lead to distortions in consumer behavior or even in investment preferences. Price subsidies may start small, but over time, these may take up a large part of the national budget and crowd out other basic priorities," the groups said in a joint statement.

They added policy flip flopping sends a wrong signal to the consumer, saying VAT suspension is a transient solution to a permanent problem of high oil prices.

"Prices are signals to consumers. Higher prices discourage consumption, thus leading to good habits like conservation.

Suspending VAT on oil sends the signal that it is all right to consume as much as when oil was cheaper, they said.

They instead urged government to directly help consumers, such as higher government spending on health and education.

The business groups said the P27-billion revenue loss for the proposed six-month suspension on VAT on oil would make it more difficult for the administration to reach goal of a balanced budget in 2008.

They said the losses could be more if the suspension is extended, which is a great temptation inasmuch as suspending taxes is a politically popular measure.

The groups said the VAT law, although unpopular, is a singular policy reform measure that gained for the country an upgrade in international credit rating. Suspending it, they said, would weaken the legislature as an institution.

"Flip-flopping on policy makes the country less than attractive as an investment destination… Suspending the law would most likely lead to a downgrade that would affect the government’s borrowing costs. So the loss in revenue is compounded by higher interest expenditure," the groups said.

Despite repeated rejections, Senator Mar Roxas yesterday said he is bent on pushing the VAT suspension on oil as a better, and more direct, relief measure to consumers.

He said the proposal for a VAT refund through coupon system is convoluted and tedious and would not be responsive to the consumers’ needs.

"Our simple yet concrete proposal will bring immediate relief worth P4 per liter of diesel and P65 per 11-kilo tank of LPG. If the government does not want to listen to the people’s plight, then we will. We’ll work to pass this as law, and the government will have to follow," Roxas said in a statement.

Among the many proposals during the Energy Summit last week included a "coupon system," floated by President Arroyo in her speech during the concluding rites. The coupon system would be funded by revenues from the sale of gencos and TransCo and the natural gas project.

The Philippine Chamber of Commerce and Industry during the summit proposed for the subsidy, foreign currency adjustment mechanism and other financial measures to cope up with rising oil prices.

PCCI is pushing for the reallocation of VAT collections on petroleum and channel the fund to the transport sector as subsidy and help them cope with the increasing prices of oil.