Monday, April 05, 2010

Oil Politics 7: Oil Price and Fare Hikes, Public Transpo Deregulation

With the recent spike in local oil price hikes recently as world oil prices were rising, there are growing voices and lobbying to demand higher fare for jeepneys, taxi and buses. While it is understandable that movement of fares (upward or downward) should follow movement in petroleum prices, I find it irrationale that politics should be used in determining when and how much, such fare movement should happen.

It is chaotic and politically complicated if government transport officials will always call for public hearing. Supporters and opponents to come, including those who ride on the issue so they will get good media coverage, which helps in their political work and lobbying, like those running in the forthcoming elections.

It is possible to detach politics from fare setting. Here are some mechanisms that may be worth considering by the various stakeholders.

1. Encourage corporate brands of jeepneys and taxis. Jeepney drivers and operators will become conscious of the corporate brand that they carry and passengers will remember the corporate brand of particular jeepney and taxi groups. Thus, some passengers will remember and avoid taking a particular jeepney or taxi corporation where drivers are discourteous and road maniacs that get into frequent accidents. And passengers will remember those jeepney or taxi corporations where drivers are courteous and friendly, give the exact change, and maintain their units in good running conditions. Competition among various jeepney and taxi corporations, not among single units, will give more comfort and safety to the passengers.

2. Deregulate fare-setting. Some jeepney or bus lines that do not maintain their units well will be forced to charge lower fares per kilometer while those jeepney or bus lines that give passengers comfortable and safe rides can charge higher fare. For instance, some bus lines can field buses with only 40 seats instead of the usual 60 seats, and charge minimum fare of P20 to P25 for the first 4 kms. Other bus lines can dispatch crammed buses (say 70 seats or more) and charge only P10 minimum fare for the first 4 kms. If fares are deregulated this way, some ugly and not regularly-maintained jeepneys will either slowly vanish from the road, or they will be forced to charge only P5 minimum fare for the first 4 kms., because passengers will have other options to ride the more comfortable jeepneys or buses even if they pay a higher fare.

3. Deregulate routing. Some jeepney or bus lines can dispatch their vehicles near the gates of big private villages in the suburbs (say Novaliches, Fairview, Antipolo, Las Pinas, Bulacan, etc.) to Makati, Ortigas, Eastwood, Manila, and so on. Then people will be encouraged to leave their cars in their house when they go to their offices or schools as they will take only one or two rides, not four or more rides.

At the moment, people who will not bring their cars from say, a village in Fairview, Quezon City to Makati, will take 4 rides or transfers. First, tricycle from their village gate to the main road. Second, jeepney or air-con van to MRT station. Third, MRT to Buendia or Ayala station, and fourth, jeepney or bus or taxi to Ayala or Buendia avenue. If one is wearing proper corporate attire and/or carrying a laptop and other important documents, it is very inconvenient and unsafe to be moving from tricycle to jeepney to the train and back to jeepney again. So even if there is heavy traffic and parking is expensive, people are forced to bring their cars to work or school, which exacerbates road congestion and parking nightmares in major commercial and business districts. The national government, through the LTFRB, and the local government created mini-monopolies on certain routes, like tricycle monopoly and jeepney monopoly.

Just encourage competition among bus or jeepney lines, also taxi lines or corporations, so that passengers will have plenty of options. If people will find that such options are safe, comfortable and economical, then they will not insist on bringing their cars everyday to their offices or their kids’ schools. There will be less traffic congestion, less air pollution, less parking problems, and more savings for the public.

And we will avoid politicized fare setting. No need for any public hearing, no need for any political and media lobbying, no need for any intervention by politicians and government transport officials.

Driver and operators of jeepneys, buses and taxi will be forced to maintain their units in good conditions, they will be forced to become more courteous to their passengers. Passengers need not even complain to the government if the service of a particular bus or jeepney line is lousy. Passengers will just stop riding that particular corporation and let their friends and acquaintances know about their bad experience. This kind of passenger boycott is worse than being reprimanded and penalized by any government transport agency.

Nearly two years ago, I wrote something about petroleum taxes.

VAT on Oil Products

July 10, 2008

As the price of petroleum products keep rising, the call for the lifting or abolition of value added tax (VAT) on these products gets louder. While the goal of such measure -- help reduce the price of oil products -- is laudable, the policy tool being proposed is wrong.

The single most important element of the "rule of law" concept is that the law applies to everyone and exempts no one. Any exemption to the rule immediately invalidates the "rule of law" and automatically becomes "rule of men". When applied to commodities, the law should apply to all sectors or products and exempt not a single sector or product.

In the crafting of the current VAT law that was enacted in 2005, a few products were exempted from coverage of VAT. These include agricultural and fishery products in their original forms, meaning raw vegetables, meat, fish, fruits, etc. Once they are processed, like dried mangoes or canned sardines, the processed product is covered by VAT.

The exemption of these products, and the attempts by many other producers that the products or services they produce be exempted from VAT, was both a proof and indicator that the 12 percent VAT rate was high, so that almost everyone wanted exemption from the tax law.

Now that it is a law, the spirit of "apply to everything and exempt nothing" should be retained. In this sense, I am not in favor of lifting or abolishing VAT on oil products. Or any other products and services.

And yet I also want the prices of those VAT-covered products and services be made lower, so how can it be done considering that VAT is one of those significant price inflators?

One of my favorite alternative policy options is the abolition of import tax (if it is not abolished yet) of all petroleum products, and abolition of excise tax on gasoline products. Current excise tax is about P5.60 per liter. These will help reduce the price of oil products.

Another policy option is a lower, flat income tax, especially on personal income tax. Any tax cut is equivalent to "salary increase". Such de facto "pay hike" especially for fixed income earners, will enable many people to better adapt to higher oil prices since it is a global phenomenon anyway, and other commodities with higher prices with higher take-home pay.

How "low" should the flat tax be to have a maximum positive result to the people? Zero income tax is the best. But the best is not always the most practical and feasible. A 10 percent flat income tax, to my mind, is the second-best alternative. At this rate, many people, from public school teachers and policemen to private sector ordinary employees to struggling small entrepreneurs, will benefit. And the State will still collect taxes at a much broader tax base as more people will be encouraged to pay income tax because the rate is lower and complying with it is simpler.

See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007

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