Fuel tax hike suspension recalled

In light of the recent drop in global oil prices, the economic team on Thursday decided to recommend to President Duterte to push through with the second tranche of oil excise tax hike as mandated under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

But it will be ultimately up to the President, who this month issued a memo approving the economic managers’ earlier recommendation to temporarily suspend the levy, to decide on the matter when the Cabinet meets on Dec. 4, Finance Secretary Carlos G. Dominguez III told a press conference Thursday.

Following the meeting of the Cabinet-level, interagency Development Budget Coordination Committee (DBCC), Dominguez said “the recommendation comes in light of the favorable outlook in world oil prices, where the Dubai crude oil prices have gone down by 14 percent from an average of $79 per barrel in October down to $68 per barrel so far in November. More so, the oil futures market projects the price of oil to decline further to below $60 per barrel in 2019, indicating a downward trend in world oil prices.”

“The DBCC also took into consideration the adverse impact on revenues and expenditures for fiscal year 2019 should the government proceed with the suspension of the scheduled increase of excise taxes on petroleum. The said measure is estimated to result in a net revenue loss of P43.4 billion for a 12-month suspension, assuming Dubai crude oil prices average $65 per barrel in 2019. The erosion in revenue will lead to a commensurate decrease in government expenditures so as not to breach the target deficit level of 3.2 percent of gross domestic product (GDP) in 2019,” the Finance chief said.

“Together with other measures to increase food supply in the country, particularly rice, the suspension of the second tranche of excise taxes on petroleum was intended to curb inflationary pressure and relieve the Filipino people of the high prices of goods. With month-on-month inflation moderating due to supply-side reforms initiated by the government, coupled with falling petroleum prices in the world market, the DBCC deems the suspension unnecessary,” he added.

The DBCC now expects Dubai crude oil prices to drop to $60-75 a barrel next year, down from the previous assumption of $75-85 a barrel.

Budget Secretary Benjamin E. Diokno said that based on the Bangko Sentral ng Pilipinas’ (BSP) computation, inflation would be within the target range of 2-4 percent next year even with the second tranche of fuel excise tax increase.

Under the TRAIN law, an excise tax of P2.50 a liter was slapped on diesel and bunker fuel starting this year. This would go up to P4.50 in 2019, and P6 in 2020.

The excise tax on gasoline also increased from P4.35 a liter to P7 in 2018, and then to P9 next year, and P10 in 2020.

Dominguez said the earlier recommendation to suspend the scheduled oil excise tax increase was “based on circumstances at that time,” when global prices shot up in October.

The Finance chief said the economic team “will be doing the President a disservice” if they did not bring the recent developments to his attention.

“This is not a rushed decision—this is based on what the facts are today,” he added.