PRESIDENT Duterte has approved his economic team’s recommendation to push through with the next tranche of fuel excise taxes taking effect in 2019, Budget Secretary Benjamin E. Diokno confirmed on Tuesday.
Diokno said the President is just simply implementing what is stated in the Tax Reform for Acceleration and Inclusion (TRAIN) law.
Asked what prompted the President to make the decision, Diokno said it’s the “sharp turnaround in world crude prices.”
“From a peak of close to $80 pb to $68 pb on November 29, with Dubai Futures prices projecting further decline below $60 per barrel in 2019. At its peak, diesel price was P49.80 per liter, it will be P37.76 on January 19, inclusive of the P2 peso excise tax. For gasoline [95 octane] it was P60.90 at its peak, it will be 50.82 on January 19 inclusive of P2 additional excise tax,” he added.
The decision came days after the Development Budget Coordination Committee (DBCC) met to reassess the situation given the declining world oil prices.
The Cabinet decision also overrode concerns by several senators that proceeding with the second-round hikes purely on the basis of lower global prices was short-sighted; and alarm by consumer and labor groups that spikes in prices of basic goods would follow the second fuel tax hike of P2 a liter, under the TRAIN law.
A forecast steady decline in global oil prices—to “around the low $50s [per barrel] in the coming months”—was seen to have weighed heavily on the final decision by the President and the Cabinet on whether to implement the second tranche in 2019, besides concerns that suspending implementation spells a P41-billion revenue gap that might impair the “Build, Build, Build” infrastructure program.
Hours before the crucial Cabinet meeting that tackled the retraction by the interagency DBCC of its recommendation last month to suspend the second round of fuel excise tax hikes, Secretary Alfonso G. Cusi said the Department of Energy (DOE) has recommended proceeding with the implementation of the second tranche in January.
“We have submitted our position already alongside the forecast. The excise tax will proceed because the country will really need to build infrastructure so we need the funds,” said the DOE secretary.
Cusi said there could be another oil price rollback next week. “Next week, we expect another rollback and the DOF [Department of Finance] made a recommendation for the second tranche to be reinstated so we made our forecast for oil.”
He added: “Our forecast supports the recommendation by the committee with the DBM [Department of Budget and Management] and DOF. We are seeing Dubai crude oil to be at around the low $50s in the coming months.”
For the past eight consecutive weeks, gasoline prices have declined by P12.05 to P12.20 per liter and diesel by P10.45 to P10.65 per liter. These adjustments reflect movements in the international market.
Hours before the Cabinet meeting that began late Tuesday afternoon, Presidential Spokesman and Chief Presidential Legal Counsel Salvador S. Panelo said that “most likely” there will already be a decision on the DBCC’s new recommendation to continue the implementation of the next increase in fuel excise taxes given the downtrend in global oil prices.
This came a month after the DBCC recommended the suspension as a way of
reining in inflation.
“From what I know, updates on oil prices will be discussed, and those agreed upon during the Association of Southeast Asian Nations Summit,” Panelo said in a mix of English and Filipino.
Senators’ concern
Senators have also expressed caution on the DBCC’s turnaround, saying it was shortsighted to withdraw the suspension simply on the basis of declining global oil prices.
They said there were many other inflationary pressures to consider and pushing through with the next round of increase would burden most sectors.
For 2019 the scheduled increase in fuel excise tax is P2 per liter, according to the TRAIN law. It 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.
Last week 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.
Besides the expected steady decline of fuel prices, Finance Secretary Carlos G. Dominguez III said they considered the impact of the suspension on the revenue and expenditures program for next year.
A one-year suspension means 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 the government to cut spending just to ensure that the programmed deficit level of 3.2 percent of GDP for 2019 is not breached.
Inflation, the DBCC said, continues to decelerate due to government efforts to address supply-side constraints as well as falling oil prices.
The DBCC has also 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.
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.
Image credits: Nonie Reyes