MANILA - The Philippines must increase the excise tax on petroleum products to boost its coffers, the World Bank said on Thursday.

In a quaterly report, the multilateral lender said the government should seriously consider raising the excise tax on petroleum products to be able to generate additional revenues needed for its spending program this year.

"Petroleum products in the Philippines are lightly taxed by international standards for an oil importing country. To ensure quality implementation of the fiscal stimulus plan, the government could consider further desirable revenue measures, such as raising gasoline excises," the World Bank said, noting that petroleum retail prices are not particularly low.

The bank cited, for instance, the excise tax on gasoline which has been pegged at P4.35 per liter since 1996.

Due to the non-indexation of gasoline, the lender said the excise tax collection from petroleum products declined by one percentage points of gross domestic product (GDP) in 2008 from the decade earlier.

"By comparison, the loss in excise revenue from tobacco is less than a third of that on petroleum products," the World Bank stressed.

It said increasing the excise tax on petroleum would reduce the excesses associated with government subsidies, and at the same time, improve the progressivity of the country's tax system since the rich consumes more fuel.

It added that the imposition of higher excise tax on petroleum products would reduce negative externalities such as congestion and pollution especially in Metro Manila.

The government currently imposes a 3-percent tariff on imported petroleum products and a 12-percent sales tax on petroleum products as mandated under Republic Act 9337 or the Expanded Value-Added Tax Act of 2005. The law abolished the excise tax slapped on diesel.

The country's oil industry is dominated by 3 major players Petron Corp., Pilipinas Shell Petroleum Corp., and Chevron Corp. (formerly Caltex).

The Finance Deparment has been pushing several revenue-enhancing measures such as the restructuring of the excise tax on sin products, the rationalization of fiscal incentives, and the simplified net income taxation scheme.

Despite this, the World Bank said the government's tax effort is likely to drop to 13.4 percent of GDP this year from about 14 percent of GDP last year due to the slowing economy, implementation of recent tax policy and administrative measures such as tax cut on personal income tax, among others.

Due to the government's dwindling tax collection and accelerated spending, the Philippines' budget deficit is expected to swell to P250 billion or 3.2 percent of GDP this year from P68.1 billion or 0.9 percent of GDP in 2008.