By Business Mirror, October 15 2018

Image Credit to Business World

DESPITE the P40-billion revenue loss if the next round of increase in oil excise taxes is put on hold, the government remains open to suspending it to ease high fuel prices. Economic managers reportedly support that move, and the President considered the idea after getting a letter from 17 proadministration senators.

Special Assistant to the President Christopher Lawrence T. Go said in a statement on Sunday that the government is “seriously considering” all available options to lessen the impact on consumers of rising oil prices.

Seventeen majority senators wrote the President on October 9 asking him to halt implementation of the scheduled next-round increases of the oil excise taxes for 2019 and 2020. The minority senators earlier filed a resolution asking for the suspension of the excise tax increase that was imposed since January 1, 2018, when the Tax Reform for Acceleration and Inclusion (TRAIN) law was signed.

The minority also sought the rollback of levy on fuel to December 31, 2017 rates.

The call for suspending the oil excise tax had mounted after inflation accelerated in recent months. More expensive fuel was tagged as a major factor behind the rise in consumer prices.

“We are open to this, but let’s consider what is stated under the TRAIN law,” Go said.

The TRAIN law provides that: “For the period covering 2018 to 2020, the scheduled increase in the excise tax on fuel as imposed in this section shall be suspended when the average Dubai crude oil price based on Mean of Platts Singapore [MOPS] for three months prior to the scheduled increase of the month reaches, or exceeds $80 per barrel.”

The Department of Finance, the National Economic and Development Authority, the Department of Energy and the Office of the President are currently monitoring the trend of international oil prices, particularly during October to December, Go added.

“Last September, the Dubai [crude] price reached $77 per barrel. If this reaches more than $80 per barrel for the next three months, the government is considering the suspension of excise tax increase come January 2019,” he said in Filipino.

Oil prices are also seen by analysts to reach $100 per barrel if the wave of US sanctions targeting Iran’s oil and gas industry cuts Iranian oil supply completely.

“It is being considered that the suspension of the next excise tax increase would lead to maybe about P40-billion loss to the government. Although we have this situation, the government’s primary consideration is its effect to the poor,” he added.

Various groups have been calling for the suspension of oil excise taxes, amid rising inflation, which has surged to a nine-year high of 6.7 percent in September.

TRAIN law sked

Under the TRAIN law, which took effect at the start of this year, excise tax on diesel will be P2.50 per liter in 2018 and will increase to P4.50 per liter in 2019, and finally by P6 per liter in 2020.

Excise tax on gasoline was increased to P7 per liter this year, from P4.35 per liter previously. For 2019 and 2020, the rates will be at P9 per liter and P10 per liter, respectively.

Finance Undersecretary Karl Kendrick T. Chua said suspending the increase in fuel excise taxes may lead to the loss of P40 billion in revenues. But he said value-added tax (VAT) collections from fuel products may help offset the losses.

“For sure, the excise [suspension] is minus P40 billion. But because the prices of oil are higher, the VAT, which is based on price, will also be higher. I just cannot say now if it will be enough to offset, it might offset part of it,” Chua said.

Senators’ letter, first rollback

Majority senators, in an October 9 letter to President Duterte, asked Malacañang to back a Senate-House consensus to “suspend any further increase in excise taxes” on diesel, gasoline and other petroleum products for 2019 and 2020 as mandated in the TRAIN law.

Senate President Vicente C. Sotto III and Senate President Pro Tempore Ralph G. Recto and Majority Leader Juan Miguel F. Zubiri led 14 other senators who pointed out that in over 41 weeks since January 18, pump prices for gasoline and diesel have increased 29 times, causing a total fuel-price increase of P12.15 for diesel and P11.40 per liter for gasoline.

Asked about whether the Palace has made a decision to suspend the 2019 and 2010 higher excise tax schedule in TRAIN, Sotto replied, “When the President read our letter, there was suddenly a decision to consider it.”

For her part, Sen. Grace Poe said in a statement late Sunday, “The time to suspend the excise tax increase is now or sooner; not in January 2019. That is per se and allowed as a safeguard in the TRAIN law under Republic Act 10963.

The senators’ call comes as oil companies announced a price reduction in petroleum products after nine consecutive weeks of oil price increases. Phoenix Petroleum and Petro Gazz implemented an P0.80-per-liter price cut in gasoline and P0.60 per liter in diesel over the weekend.

Petron Corp., Pilipinas Shell, Total Philippines, PTT Philippines, Eastern Petroleum and Seaoil Philippines announced a price cut of P0.85 per liter for gasoline, P0.65 per liter for diesel and P0.20 per liter for kerosene. Except for Seaoil, which implemented its price rollback last Saturday, the rest of the oil companies adjusted their prices at 6 a.m., Monday.

In their letter to Duterte, the 17 senators said: “While your administration has already initiated steps to alleviate the plight of countrymen, we earnestly believe that such suspension of oil excise tax increases would greatly help lift the heavy burden they carry because of high basic commodity prices.”

They added, “At this time, we reiterate our support for the administration’s reforms, as well as its efforts to improve the lives of Filipinos.”

The price rollback comes after diesel prices went up by a cumulative P5.85 per liter, gasoline by P5.05 per liter and kerosene by P4.65 per liter from August 14 to October 9.

The Philippines is a net importer of oil products. This means that the country’s fuel supply is generally sourced from abroad, making the country vulnerable to changes in international oil-price markets.

Latest data from the Department of Energy (DOE) showed that the country has been importing 94 percent of its oil requirements, with the total import bill jumping to $9.89 billion in 2017, a 31.2-percent increase from the $7.54-billion import bill in 2016.

The rise in petroleum prices over the past weeks was due to the current global situation, where international political and economic factors are at play.

Also, global oil prices tend to go up in the winter months (October-March), as demand for heating is at its highest.

Conflict factor

The US exit from the Iran nuclear deal was accompanied by its re-imposition of economic sanctions on Iran, including those related to oil.

The US’s sanctions against Iran’s oil exports are to be implemented on November 4, threatening an outflow that could reach as high as 2.7 million barrels a day (mbpd).

Russian President Vladimir Putin criticized the US sanctions against Iran and other producing countries as they are destabilizing the markets and pushing oil prices up, at a time when the Opec-led group had achieved the goal to balance the markets.

The political and economic instability in Venezuela, which has the world’s largest proven oil reserves and is considered one of the largest oil exporters in the West, is also another factor.

The International Energy Agency (IEA), meanwhile, had cited an adverse production outlook in Venezuela, Libya and Iran.

“The situation in Venezuela could deteriorate even faster, strife could return to Libya and the [remaining days leading] to November 4 will reveal more decisions taken by countries and companies with respect to Iranian oil purchases,” the IEA said in a report.

The DOE, for its part, said it continues to explore higher and expanded fuel discounts to public utility vehicles, looking at nearby countries for lower-priced supply and it noted it had taken even unpopular options to ensure that consumers are protected from the impact of this global price situation.

“Even before the onset of the spike in world petroleum prices, the energy family has been relentless in working out ways to help our most vulnerable sectors, such as transport groups. Public-utility vehicles are able to avail of fuel discounts through the continued expanding partnership of the DOE with various oil companies.

“Likewise, we have asked the Philippine National Oil Co.-Exploration Corp., one of our attached agencies, to look into importing low-cost diesel to augment supply and offer a more affordable fuel option to our public transportation sector,” said the agency.

The DOE is also part of the interagency Pantawid Pasada program being led by the Department of Transportation, where fuel subsidy cards are being distributed to qualified franchise holders of public utility jeepneys.

“Together with our country’s economic management team, the DOE and your entire energy family remain unyielding in finding ways to manage the situation at hand.  We will not rest from pushing vital industry reforms, including the crafting of policies that promote the exploration and development of our indigenous energy resources, the expansion of our renewable-energy capabilities, uphold the integrity of safety and resiliency standards, and bring power to unserved and underserved areas in the Philippines,” the DOE said in its statement last week.

Reports from Lenie Lectura, Bernadette D. Nicolas and Butch Fernandez