A FRESH INCREASE in fuel excise tax will proceed as scheduled next month after President Rodrigo R. Duterte approved in a Cabinet meeting on Tuesday night his economic managers’ recommendation to scrap his order barely four weeks ago to suspend the hike, the chief executive’s spokesman said.
“The President has approved the recommendation of the Development Budget Coordination Committee (DBCC) to proceed with the implementation of the second tranche of excise tax on fuel, effective January 2019,” Presidential Spokesperson Salvador S. Panelo said in a mobile phone message on Tuesday night when asked for updates as the meeting was under way.
“Due consideration was given to several factors including, but not limited to: the downward impact on inflation owing to the steep drop in the Dubai crude oil price, the disruption in the BBB (‘Build Build Build’) infrastructure program and reduction in budgets, including personnel services of national government agencies, should excise tax on fuel be suspended,” Mr. Panelo explained.
“Under the TRAIN law, suspension of excise taxes is provided for only when the global price of oil averages $80 per barrel (/bbl) or higher for three consecutive months. The current oil price has gone down to $52-53 per barrel, hence, the legal requirement for the suspension of excise tax on fuel cannot be met,” he added, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) that took effect last January.
TRAIN, among other major adjustments to the local tax structure, imposed a P6 per liter fuel tax spread out through three years, with the first tranche of P2.50/liter imposed last January, a P2/liter increase set in 2019 and P1.5/liter for 2020.
Dubai crude price — Asia’s benchmark — breached $80/bbl from Sept. 26 to Oct. 12, prompting economic managers to recommend suspension of the scheduled fuel tax hike to Mr. Duterte on Oct. 11. They were notified of the President’s approval of their recommendation on Nov. 8.
But that price has been falling since, hitting $58.25/bbl, $59.06/bbl, $61.20/bbl and $61.50/bbl on November 29 and 30, as well as Dec. 3 and 4, respectively, prompting the DBCC members to decide in a Nov. 29 meeting to recommend that the fuel tax hike proceed as scheduled.
Economic managers had also earlier flagged that suspension of the scheduled tax hike would deprive the government of an estimated P43.4 billion in foregone revenues.
MAKING THE CASE
Earlier in the day, the Department of Energy (DoE) said it expected world crude prices to be at the ” low $50s” per barrel next year, prompting the agency to support state economic managers’ proposal last week to scrap Malacañang’s decision to suspend an excise tax hike on fuel that was scheduled for next month.
“We are seeing the Dubai crude oil at around the low $50s in the coming months,” Energy Secretary Alfonso G. Cusi told reporters on the sidelines of the Energy Investment Forum 2018 at the Shangri-La at the Fort in Taguig City on Tuesday.
“We have submitted our position already. We submitted our forecast and it shows there that the forecast will be somewhere in the low $50 and that supports the recommendation of the DBM (Department of Budget and Management) and the DoF (Department of Finance) to reinstate the excise tax [hike] because… we really need to build our infrastructure and we need the fund, we need the money,” he added.
Mr. Cusi said other developments in the international oil market could also result in more supply. He said news that Qatar would be leaving the Organization of the Petroleum Exporting Countries (OPEC) could mean the Middle Eastern country would be acting independently.
“Hopefully, that would increase their production and increase in the supply in the world market,” he added.
“The law of supply and demand: if there will be more supply then the price will go down.”
Mr. Cusi also downplayed the threat of a production cutback by OPEC major Saudi Arabia and Russia.
“As of now, the forecast is, something like, the world supply is something like 100 million barrels a day and the demand is somewhere at the low 90s, 98-99 [million barrels]. So there is that buffer and it is projected that the US will be increasing its production,” he said.
“So if the US will be able to cover for the reduction in the production of Saudi and Russia, then we’re okay,” he added.
“Next week, we’re going to see hopefully another rollback.”
This week, oil companies cut the prices of petroleum products by P2.00 per liter for gasoline, P2.10 per liter for diesel and P2.00 per liter for kerosene. This week’s reduction is the eighth straight week of price cut for local oil companies at amounts mostly higher than P1.00-P2.00 per liter. — Arjay L. Balinbin with Victor V. Saulon