Global oil prices to decide oil excise tax suspension

By Joann Villanueva

October 4, 2018, 6:27 pm

MANILA -- A suspension of excise tax increases levied on petroleum products under the Tax Reform for Acceleration and Inclusion (TRAIN) law is possible next year, but only if global crude prices average USD80 per barrel in the last quarter of 2018.

This was stressed by Department of Finance (DOF) Undersecretary Karl Chua on Thursday, in response to clamors for the government to suspend the implementation of higher oil excise tax rates given the continued increases in domestic oil prices.

Reports indicate that as of Wednesday, oil prices in the international market has already risen to USD86 per barrel. Oil market analysts predict that it may further rise to USD100 per barrel before yearend, if geo-political tensions in the Middle East do not abate.

He explained that if prices of oil in the international market average USD80 per barrel in the next three months, there is a possibility that the second tranche of excise tax hike for this commodity will be suspended. “(It) will be suspended (but) we’ll see if its averaging USD80 (per barrel) in the next three months,” he said.

Under the TRAIN Law, which took effect at the start of this year, excise tax on diesel will be PHP2.50 per liter in 2018 and will increase to PHP4.50 per liter in 2019, and finally PHP6 per liter in 2020.

Excise tax on gasoline was increased to PHP7 per liter this year from PHP4.35 per liter previously. For 2019 and 2020, the rates will be at PHP9 per liter and PHP10 per liter, respectively.

Government officials have repeatedly pointed out that the main reason for the continued uptick in local pump prices is the sustained increase in world crude prices and not because of TRAIN. The soaring price of oil is also mostly to blame for pushing the inflation rate beyond the government’s two to four percent target until 2020, they said.

Global oil prices have risen from around USD60 per barrel last year due to supply concerns due to the impending US sanctions on Iran’s crude export, among other factors.

Chua also pointed out that if ever the suspension will be made, it will not be forever. “It’s like a class suspension, it’s not forever. When things go better it resumes,” he said.

The Finance department official said the timeline for the suspension and resumption of the higher fuel excise tax rates will be discussed by those formulating TRAIN’s implementing rules and regulations (IRR).

In terms of the impact on government revenues of suspension of any provisions of the TRAIN law, Chua said this will still be studied. He, however, noted that any decline in revenues due to the possible suspension of oil excise tax hike will be countered by the value added tax (VAT). He declined to give any figure although he said that “it (VAT) might offset part of it.”

Chua said economic managers are set to review the impact of the latest developments on government revenues and on the real economy during the meeting of the inter-agency Development Budget Coordination Committee (DBCC), which is scheduled on October 16. “We will have to review the assumptions,” he added. (PNA)