DOF: Without new law, excise on fuel can’t be suspended
MANILA, Philippines—The Department of Finance (DOF) is cold to the Department of Energy’s (DOE) proposal to suspend excise on oil amid high global prices, as doing so would cost the government over a hundred billion pesos in foregone revenues amid a prolonged pandemic.
At present, there is no existing law which can temporarily defer collection of fuel excise, such that new legislation will be needed in case the DOE pushes through with its plan, Finance Undersecretary Antonette Tionko said in an Oct. 20 memorandum to Finance Secretary Carlos Dominguez III.
The Tax Reform for Acceleration and Inclusion (TRAIN) Act only covered oil excise hikes during the period 2018 to 2020. The TRAIN law had a provision where the scheduled yearly excise increases may be deferred if the Dubai crude oil price based on Mean of Platts Singapore (MOPS) averaged $80 per barrel or higher at least three months before the rate adjustments scheduled at the start of the following year.
This rule only applied to the oil excise increases which already took effect in 2018, 2019 and 2020.
“The only possible way the DOE may be granted powers to suspend is through legislative means. The power of taxation is vested in Congress and absent any law, the DOE, the DOF, or any other agency of the government has no power to suspend the imposition of excise taxes,” Tionko told Dominguez.
On top of the lack of a legal basis, Tionko warned that removing excise on oil products would result in a “substantial” revenue loss, estimated at a total of P131.4 billion if implemented in 2022.
The DOF’s estimate took into account the P24.7 billion in baseline excise collections plus the bigger P106.7 billion in incremental revenues which the Bureau of Customs (BOC) had been tasked with collecting next year from imported oil products under the TRAIN Act’s prevailing tax rates.
Since 2020, the TRAIN Act levied a P6 excise per liter or kilogram of bunker fuel oil, diesel fuel oil and petroleum coke. Unleaded gasoline was being taxed P10 a liter.
The tax on liquefied petroleum gas (LPG) was P3 per kilogram, while the levy on kerosene was P5 per liter.
Prior to the TRAIN Act, bunker and diesel fuel oil, kerosene, as well as LPG were not slapped with any excise.
The DOF’s projected revenue losses excluded collections from the 12-percent value-added tax (VAT) and also took into account the tax perks of Petron Corp.’s Bataan facility, such that the Bureau of Internal Revenue (BIR) was not expected to collect any excise from the lone domestic refinery in 2022.
“Any suspension of the imposition of excise taxes should be appropriately studied as the revenue to be foregone is substantial and may affect the government’s budget for COVID-19 recovery measures,” Tionko said.
The executive branch was pitching to Congress a record-high P5.02-trillion national budget for 2022, which will be financed by tax and non-tax revenues plus borrowings.
The government targets to collect P3.29 trillion in revenues in 2022, returning to the P3-trillion mark last seen in 2019 as collections fell below pre-pandemic levels last year and likely this year due to the harder times wrought by the pandemic.
Next year’s budget would continue to finance programs and projects to fight the health and socioeconomic ills inflicted by COVID-19.
Global oil prices climbed above $80 per barrel this month as demand for oil recovered from 2020’s slump caused by worldwide trade and travel restrictions when countries closed their borders to contain the spread of the deadly coronavirus.
Local pump prices again rose this week, bringing the two-month hikes in gasoline prices to over P7 a liter.
Oil prices were seen as an upside risk to near-term inflation, which as of end-September averaged 4.5 percent due to expensive food and high transport costs. The rate was above the government’s 2 to 4 percent target.
