MANILA -- Economic managers on Thursday said they will now recommend the implementation of the second tranche of the oil excise tax increase scheduled for 2019.
This is a complete reversal from their recommendation earlier this year, when oil prices soared to over USD80 per barrel, that the hike be put on hold until world crude prices have softened. Since then, oil prices have rapidly retreated to below USD70 per barrel.
In a briefing held after the special meeting of the inter-agency Development Budget Coordination Committee (DBCC) on Thursday, Finance Secretary Carlos Dominguez III said economic managers want to implement the PHP2 per liter hike on oil prices next year because conditions in the world market have changed abruptly since their last recommendation.
“More so, the oil future market projects the price of oil to decline further to below USD60 per barrel in 2019, indicating a downward trend in world oil prices,” he said.
Dominguez said their recommendations are “based on the circumstances.”
“Circumstances have changed,” he said, stressing that DBCC’s recommendation “is not a rush decision.”
“This is based on the facts today,” he pointed out.
Earlier, the DBCC recommended the suspension of the second tranche of oil excise tax hike scheduled for next year on expectations that global oil prices will continue to breach the USD80 per barrel level.
This recommendation has been approved by President Rodrigo R. Duterte.
Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, oil excise tax hike may be suspended if global oil prices averages USD80 per barrel in the last three months of 2018.
Global oil prices breached the USD80 per barrel in October due to, among others, the geo-political concerns and it was forecast to remain elevated given the developments in the past months.
Dominguez said economic managers took note of the negative impact of the excise tax hike suspension on government revenues.
He explained that the government is projected to post a net loss of PHP43.4 billion for a 12-month suspension of the excise tax hike if Dubai crude would average at PHP65 per barrel next year.
This revenue loss, he said, will result in a decreased capacity of the government to finance programs so as not to breach the deficit target of three percent of gross domestic product (GDP).
Dominguez said the impact of the higher oil excise taxes next year on inflation will be countered by the measures put in place starting last September to address higher inflation rate that include boosting of supply of rice from the National Food Authority (NFA).
These measures have resulted in slower inflation rate of the food index last October, thus, the steady rate of price increases in the 10th month this year of 6.7 percent.
He said their latest recommendation will be discussed during the Cabinet meeting on Tuesday, December 4, and subject for approval by the President.
Relatively, Dominguez said that with the latest development on global oil prices, economic managers have revised their 2019 Dubai crude oil prices from USD75-85 per barrel to USD60-75 per barrel.
Revenues are seen to reach PHP3.2 trillion next year, spending, PHP3.8 trillion; and budget deficit to account for 3.2 percent of domestic output. (PNA)
