MALACAÑANG has approved the proposed suspension of the P2 per liter excise tax hike on fuel due January 2019, despite signs oil prices are on the way down.
A Nov. 8 memorandum from Executive Secretary Salvador C. Medialdea — sent to reporters on Wednesday — informed Finance Sec. Carlos G. Dominguez III, Budget Sec. Benjamin E. Diokno, Socioeconomic Planning Sec. Ernesto M. Pernia and Energy Sec. Alfoso G. Cusi “of the approval of your [Oct. 11] recommendation to suspend the next scheduled increase in the excise tax on fuel…”
Under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act that took effect last January, succeeding increases in fuel excise tax will be suspended should Dubai crude oil price three months prior to a scheduled increase average at least $80 per barrel (/bbl). That law, among other adjustments to the tax structure, imposed a P6 per liter fuel excise tax spread out through three years, with the first tranche of P2.5 per liter imposed since January. Further increases of P2 and P1.5 per liter have been scheduled for 2019 and 2020, respectively.
The move to suspend the scheduled increase came in the wake of $80/bbl Dubai crude price levels which hit on Sept. 26.
Faster increases in local food and global oil prices had fueled Philippine inflation to clock multi-year highs lately, with the past eight months breaching the central bank’s 2-4% full-year target range for 2018. Headline inflation averaged 5.1% in the 10 months to October.
Moreover, inflation has been clocking multiyear peaks as the country hurtles closer to the May 2019 midterm elections.
Dubai crude price, however, has been falling progressively below the $80/bbl trigger since Oct. 18, hitting $69.35/bbl, $70.66/bbl and $68.48/bbl on Nov. 9, 12 and 13, respectively.
On Wednesday, Reuters reported that “[o]il traders’ worries over record supplies arriving in Asia just as the outlook of its key growth economies weakens have pulled down global crude benchmarks by a quarter since early October,” just as oil traders and analysts were projecting oil prices of $90-100/bbl by yearend as recently as September.
Domestic fuel pump prices have now gone down for the fifth consecutive week since Oct. 15, with cumulative reductions of P7.9 per liter for gasoline, P5.15 per liter for diesel and P4.3 per liter for kerosene.
“I just got a communication from the Executive Secretary saying that our proposal to temporarily suspend the P2 additional oil excise tax next year has been approved,” Budget Secretary Benjamin E. Diokno said in a press briefing separately on Wednesday.
“We’ll stick to the decision not to impose the additional P2 in the meantime.”
The Finance department has estimated that the tax hike suspension will cost the government P41 billion in forgone revenues, while the central bank estimates it would shave 0.2 percentage point off full-year inflation.
Mr. Diokno said that the tax hike suspension will be “subject to review every quarter”, adding that “after a quarter review we can take it back.” — Elijah Joseph C. Tubayan