By Rea Cu & Bernadette D. Nicolas
A MONTH after recommending the suspension of the second tranche of the hike in fuel excise taxes next year as a way of reining in inflation, the country’s economic managers said on Thursday that the measure is no longer necessary.
Members of the Development Budget Coordination Committee (DBCC) said they will recommend to the President the continued implementation of the scheduled increase in fuel excise tax to P2 per liter in 2019 under the Tax Reform for Acceleration and Inclusion (TRAIN) law.
The economic managers told reporters in a news conference at the Department of Finance headquarters in Manila that the scheduled increase in fuel excise tax must be implemented in light of the favorable outlook in world oil prices.
The DBCC noted that Dubai crude oil prices have gone down by 14 percent to $68 per barrel in November, from $79 per barrel last month. The average price, the DBCC said, may maintain a downward trajectory and drop below $60 per barrel next year.
Finance Secretary Carlos G. Dominguez III also told reporters that the DBCC considered the impact of the suspension on the government’s revenues and expenditures program for next year. Dominguez said suspending it for one year would lead to an estimated net revenue loss of P43.4 billion, assuming that Dubai crude oil prices average $65 per barrel next year.
Dominguez said the erosion in revenue may force government to cut spending just to ensure that the programmed deficit level of 3.2 percent of GDP for 2019 will not be breached.
Inflation, the DBCC said, continues to decelerate due to government efforts to address supply-side constraints as well as falling oil prices.
“With month-on-month inflation moderating due to supply-side reforms initiated by the government, coupled with falling petroleum prices in the world market, the DBCC deems the suspension unnecessary,” Dominguez said.
The recommendation is scheduled to be further discussed during a Cabinet meeting on Tuesday, December 4, and is still subject to the approval of President Duterte.
“The ultimate target is not so much the fuel price increase but the overall inflation rate. And we believe that with the international prices of fuel as they are today, plus the effects of the implementation of the rice tariffication law, it is expected that the targets of the inflation rate will be met despite the fact that the second tranche of TRAIN will be implemented,” he added.
The DBCC said it has revised its assumptions on Dubai crude oil prices—from a range of $75 to $85 per barrel, to $60 to $75 per barrel in 2019.
“The circumstances have changed drastically and if we ignore this change we will not be acting as promised, basically, that is to act on facts and to make decisions rationally based on what are the prevailing information,” Dominguez said.
The finance chief said a draft implementing rules and regulations (IRR) on the provision of increasing fuel excise tax under the TRAIN is already in the works.
The TRAIN law called for an excise tax of P2.50 per liter on diesel, with an additional P2 to be imposed next year and P1.50 per liter in 2020. This brings the excise tax on diesel to P4.50 per liter in 2019, and P6 per liter in 2020.
From the previous P4.35 per liter, the excise tax on gasoline was increased to P7 this year, with an additional P2 increase in 2019, and P1 in 2020. For 2019 and 2020, the rates will be at P9 per liter and P10 per liter, respectively.
Under the TRAIN law, the excise tax increase may be suspended if the international price of Dubai crude breaches the $80-per-barrel threshold for three months. The law was silent on the mechanism for lifting the suspension.
In a memorandum dated November 8, Executive Secretary Salvador C. Medialdea informed the economic managers that the President has approved their proposal to suspend the hike in fuel excise tax.
Analysts weigh in
BUDGET Secretary and DBCC Chairman Benjamin E. Diokno said the second-round increase in fuel excise tax will not accelerate inflation next year. Diokno said inflation in 2019 and 2020 will still fall within government’s target.
“We have the BSP [Bangko Sentral ng Pilipinas] deputy governor briefing us on the oil price
situation earlier. We have made the decision based on that briefing, as he said that even with the P2 additional excise tax, we will still be within the projected inflation targets this year and next year and also for 2020,” he said.
Analysts interviewed by the BusinessMirror agreed with the assessment of the country’s economic managers, saying their decision to continue implementing the increase in fuel excise tax was the right move.
Calixto V. Chikiamco, president of the Foundation for Economic Freedom, noted that the government needs additional revenue to fund its massive infrastructure program.
“In the end, this will make the economy more competitive and create jobs. As for inflation, it should go down because global oil prices are going down, massive rice imports arriving, peso is strengthening, and BSP hiked interest rates,” Chikiamco said, adding that oil prices are on the downtrend.
“Even the United States economy is softening as shown by GM [General Motors] layoffs and stock market declines, indicating lower demand for oil in the future,” he added.
University of Asia and the Pacific School of Economics Dean Cid L. Terosa told the BusinessMirror that oil prices have been going down and are projected to follow a more “predictable” trend in the future.
“This must have prompted the withdrawal of the recommendation. If oil prices remain within a fairly stable range, inflation may not experience upward pressures,” Terosa said.
Filomeno S. Sta. Ana II, coordinator for Action for Economic Reforms, said the government should adhere to the provisions of the law so they will not be accused of violating the law or politicking.
“It has been time and again stressed that the impact of TRAIN on inflation is minimal. The real culprit is food inflation, a result of bad policy. Besides, oil rates are declining, recent rollbacks are even bigger than forthcoming increase,” he said.
Former Socioeconomic Planning Secretary Romulo L. Neri also said retaining the excise tax on petroleum products will have a minimal impact on inflation.
However, Jose Enrique A. Africa, executive director of IBON Foundation Inc., criticized the move, saying the increase in fuel excise tax will be inflationary.
“The government is doing the wrong thing in imposing a higher consumption tax burden on the majority of poor Filipinos who can ill afford this amid low wages and growing joblessness,” Africa said.
“Inflation next year only partly depends on new higher taxes and the eventual inflation situation also depends on how oil prices move, the exchange rate, whether government spending slows and many other factors,” he added.