DoF preparing rules to re-impose fuel excise hike

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IMPLEMENTING RULES and regulations (IRR) for re-imposing the next P2 fuel excise tax following its planned suspension in 2019 are expected soon.

Finance Assistant Secretary Antonio Joselito G. Lambino II told reporters on Friday that the Department of Finance (DoF) and the Bureau of Internal Revenue (BIR) are currently drafting the IRR on reimposing the suspended tax hike when the global crude benchmark prices fall. The tax reform law is currently silent on the conditions necessary for reimposing the fuel tax hike.

“That’s in a very advanced stage of finalization and it will be ready very soon. So it’s reasonable to explore that suspension for lifting, the mechanism for lifting the suspension could be something like a three month average of below $80 per barrel (/bbl),” he said.

Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) that took effect in January, raised fuel excise taxes by P2.50 per liter this year and is scheduled to add P2/liter and P1.50/liter in 2019 and 2020, respectively, totaling a P6/liter excise tax hike.

The law allows the hike in fuel taxes to be suspended when the Dubai crude benchmark averages $80 per barrel or more in the three months prior to the scheduled increase.


Malacañang announced last week its intention to suspend the scheduled tax hike even before the three-month trigger event. The Dubai crude benchmark began exceeding $80 in late September.

Finance Undersecretary Karl Kendrick T. Chua said the law provides for automatic implementation of tax hikes such that by 2020, fuel will be taxed at the full P6 per liter.

“There is already the law that provides the scheduled increase. So if you suspend for one year, by 2020 you have to apply the full amount. So that is the minimum, but if you suspend after one year you have to apply the next increase if the prices do not go above $80,” he said.

The DoF has said that the forgone revenue from suspending the P2 hike in 2019 amounts to P41 billion. Taking into account the higher value-added tax (VAT) take from higher oil prices and the peso’s depreciation, the net forgone revenue would be around P27 billion.

“To complement the efforts against hoarding and profiteering as expectations are anchored in a downward direction then it’s harder for bad behavior to be carried out that will make things worse so that’s part of the whole package of things being done,” said Mr. Lambino, while noting actions taken by the Palace to boost food supply and streamline distribution.

A task force has been created to look at the possible budget cuts for non-priority expenses in order to maintain the targeted fiscal deficit ceiling at 3.2% of gross domestic product.

Finance Undersecretary and chief economist Gil S. Beltran meanwhile said that while the Dubai benchmark is expected to remain elevated in the last three months of the year, it is expected to fall by 2019.

“Oil prices are expected to go down eventually. It will go down to $75/barrel by December next year (2019). The trend is going down to about $60/barrel in three years,” he said, basing his estimate on the direction of futures contracts.

The DoF has said that the TRAIN law was not the main driver of inflation, which has hit nine-year highs.

It said the main causes were a confluence of elevated oil prices, the peso’s weakening, food supply issues, and the impact of typhoons.

Asked whether the DoF will seek to re-impose the fuel hike within 2019 amid some political pressure in an election year, Mr. Lambino said: “I don’t think we capitulated to public pressure. I think we looked at the data we saw the drivers of inflation, we saw that there were four main drivers… having looked at all of that the decision to recommend was made because we needed to anchor inflation expectations.”

Mr. Lambino added that the $80 per barrel threshold may be reviewed in the future, but it was “not the intention at this point.” — Elijah Joseph C. Tubayan