DOF OKs temporary suspension of oil excise tax in Q1 2019 but…

The head of the Duterte administration’s economic team on Monday said the temporary suspension of the increase in oil excise taxes scheduled next year will push through during the first quarter of 2019.

However, documents showed the Department of Finance (DOF) wanted an immediate resumption in the implementation of the increased oil excise tax as soon as average global prices return below the $80-per-barrel threshold.

Asked for an update by Senator Loren Legarda during the hearing on the DOF’s proposed 2019 budget, Finance Secretary Carlos G. Dominguez III said: “We have not received an official response to it, but I believe the President will approve it.”

Dominguez said that since the suspension will take effect on January 1, 2019, Malacañang will have “ample” time to deliberate on the economic team’s recommendation.

Dominguez later told reporters that a review will be conducted after the first three months of excise tax suspension to see if the rolling global oil price average during the period was lower than $80 per barrel to revert the levy slapped on the commodity.

According to documents obtained last week, the DOF proposed to “explicitly include” a provision in the guidelines covering the fuel excise under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, as follows: “In the event that there is suspension of the implementation of the scheduled increase in excise tax and when at any given time within the year, the three-month rolling average Dubai Crude Oil price based on MOPS falls below $80 per barrel, the scheduled increase for that year shall resume.”

“The resumption of the increase in excise tax shall apply for the rest of the year,” based on the DOF’s proposal, with the first trigger period from January 1 to March 31 of that year.

But Finance Undersecretary Karl Kendrick T. Chua also said Monday that the interagency committee working on the guidelines has yet to approve the DOF’s proposal.

To recall, the economic managers had recommended to the President the temporary suspension of the P2 oil excise tax rate hike scheduled on January 1, 2019 due to elevated prices of late.

Under the TRAIN Law, an excise tax of P2.50 per liter was imposed on diesel and bunker fuel starting 2018. This would go up to P4.50 in 2019, and P6 in 2020.

The excise tax on gasoline increased from P4.35 per liter to P7 this year, and then to P9 in 2019, and P10 in 2020.

The TRAIN Law or Republic Act No. 10963 stated that: “For the period covering 2018 to 2020, the scheduled increase in the excise tax on fuel as imposed in this section shall be suspended when the average Dubai crude oil price based on Mean of Platts Singapore for three months prior to the scheduled increase of the month reaches or exceeds $80 per barrel.”

In case the scheduled increase will be suspended due to elevated global prices, it nonetheless “shall not result in any reduction of the excise tax being imposed at the time of the suspension,” the TRAIN Law states.

Last week, DOF Undersecretary and chief economist Gil S. Beltran noted in an economic bulletin that Dubai crude oil futures for the next six months already fell below $80 per barrel as of October 12, although he pointed out that crude oil prices were “volatile” amid “uncertainties” in the global economy.

But Finance Assistant Secretary Antonio Joselito G. Lambino II also last week said the recommendation to suspend next year’s tranche of oil fuel excise taxes still stands.

“We are anticipating a formal announcement from the Office of the President,” Lambino said.

Lambino noted that the decision to suspend the excise tax was made when the prevailing and futures market prices were both more than $80 a barrel.

“We will review the decision at some point next year after the suspension is implemented,” Lambino said.

The implementing rules and regulations (IRR) for the suspension of fuel excise taxes is currently being crafted by a committee comprised of the departments of Energy and Finance, as well as the Bureaus of Customs and Internal Revenue, among other agencies.

The IRR will also clarify when to resume the oil excise tax rates.

The government plans to cut down spending on non-infrastructure items once the fuel excise tax is temporarily suspended.

Budget Secretary Benjamin E. Diokno told reporters last week that the interagency Development Budget Coordination Committee (DBCC) will form a task force to identify what items in the budget to postpone or cut.

Diokno said vehicle purchases will likely be deferred.

But Diokno said infrastructure projects will be “protected,” as the budget cut was not expected to impact on the ambitious “Build, Build, Build” program.

For his part, Dominguez said: “We are working with the DBCC to make sure that the ‘Build, Build, Build’ program will not be negatively affected.”  /kga