DoE cites role as arbiter of fuel tax suspension

THE tax reform law contains a mechanism authorizing the Department of Energy (DoE) to trigger the suspension of another increase in taxes imposed on petroleum products next year, an official said.

Rino E. Abad, director of the DoE’s Oil Industry Management Bureau, said the Tax Reform for Acceleration and Inclusion (TRAIN) law requires the department to monitor international crude prices in the months of September, October and November this year.

He said should prices during the three months average at least $80 per barrel, the DoE can “certify” that the ceiling had been breached, prompting the Department of Finance (DoF) to call for the suspension of the TRAIN law’s second tranche.

“If recent events persist — for example the Iran sanctions, the Venezuela ongoing economic and political crises and of course, the objective of the OPEC especially Saudi Arabia to really achieve the $80 per barrel crude oil price — then the indication… in the short term leads towards the increase in price,” he told reporters.

He said such “indications” are expected by the DoE in the next to three to six months.

He said the DoE has a subscription to Mean of Platts Singapore (MOPS), the average of a set of Singapore-based oil product price assessments published by global information provider Platts. He said Platts also provides the department with three-month forecasts on crude prices.

Mr. Abad said the new taxes that have been imposed starting this year will remain. The TRAIN law this year added P2.65 per liter to the price of gasoline as excise tax, P0.32 per liter as value-added tax, or a total of P2.97 per liter.

For diesel, the law resulted in an increase of P2.50 per liter as excise tax and P0.30 as value-added tax (VAT), or a total of P2.80 per liter. Diesel used to be free of VAT and excise tax.

Aside from the two commonly used products, TRAIN also imposed excise and value-added taxes on aviation fuel, kerosene, fuel oil, liquefied petroleum gas (LPG) and auto LPG.

The second tranche of TRAIN is set to add P2.24 per liter to the price of gasoline and P2.24 per liter for diesel as excise and value-added taxes.

The taxes come as the underlying prices of petroleum products are rising on the international market.

Based on the DoE’s monitoring, the international price of diesel hit $73.64 per barrel as of May 18, a big jump from $26.81 per barrel in January 2016.

Mr. Abad said that aside from the $80-per-barrel price ceiling, the TRAIN law also calls for the distribution of fuel vouchers to drivers of public utility vehicles to soften the impact of higher petroleum prices. He said the fuel voucher is a direct subsidy.

DoE data estimate gasoline prices as of May 18 at P54.02 per liter, while kerosene was at P50.76 and diesel P40.50.

Mr. Abad said taxes are just a component of the prices of petroleum products. The components of the diesel price, for instance, include more than 62% for the cost of the fuel on international markets and 21% as the “industry take.” Taxes account for the rest.

He said “industry take” is controlled by the oil companies, and include their fixed and variable costs in doing business, plus profit.

He said what is not clear in the law is whether the suspension of the second tranche of TRAIN will result in the third tranche being implemented once the tax reform resumes. He said the law is clear that the reforms are to be in place only until 2020.

Earlier this week, Senator Sherwin T. Gatchalian called on the DoE to “accurately forecast the expected price of crude oil over the next six months and lead the preparation of strategies that would minimize the impact of surging prices on public utility drivers and private consumers.”

Mr. Gatchalian, who heads the Senate energy committee, said Patrick Pouyanne, the chief executive officer of French oil company Total SA, has warned that oil prices could hit $100 per barrel in the coming months. —