DoF estimates P40B in lost revenue if fuel excise suspended

THE DEPARTMENT of Finance (DoF) said that the government will lose some P40 billion in revenue if it suspends the second tranche of the fuel tax hike next year, adding that it has yet to draft the implementing rules on how the tax will be suspended and reinstated.

“For sure the excise is minus P40 billion. It will have an effect on the fiscal deficit,” Undersecretary Karl Kendrick T. Chua told reporters on the sidelines of a House hearing late Wednesday.

According to the Tax Reform for Acceleration and Inclusion (TRAIN) law, the subsequent increases in fuel taxes will be halted if the Dubai crude benchmark hits or exceeds $80 per barrel over three months, a level which it has already breached.

The law increased fuel excise taxes by P2.5 per liter this year, which is scheduled to rise by a further P2 and P1.5 per liter in 2019, and 2020, respectively, for a total excise of P6 per liter.

However he said that the increase in fuel prices will also increase the value-added tax (VAT) payable, which could help offset the revenue loss. He added that the losses can also be minimized if the tax hike can be restored.

“I cannot say now if it will be enough to offset, it might offset part of it. But I don’t know at this point when it will be resumed that’s being discussed, I also don’t know the timing, the VAT effect,” said Mr. Chua.

He said an inter-agency body is expected to produce in the coming weeks the implementing rules and regulations (IRR) for the possible suspension of the excise tax increase on fuel, especially the mechanism for reinstating it.

“A suspension… is not forever. When things get better it resumes. So we have to determine in the IRR when it will resume. We are discussing the IRR how to properly reinstate or resume it,” he said.

“Some people think a suspension is forever but that’s not what it means. We’ll make it clear in the IRR which will be approved I suppose it will be approved in the coming weeks so that its clear,” he added.

Senator Paolo Benigno A. Aquino IV on Wednesday queried the DoF on the absence of implementing guidelines for the possible suspension of the fuel excise tax.

Earlier he sought a blanket suspension of the law, amid high inflation — which was at a nineyear high of 6.4% in August, to average 4.8% in the first eight months of the year, exceeding the central bank’s 2-4% target.

Mr. Chua has argued that a blanket suspension will benefit high-income families more, as they consume more fuel.

He said that the government will fast-track the release of its social mitigating measures such as the monthly P200 unconditional cash transfer for the poorest 50% of Filipino households this year, as well as P5,000 worth of fuel vouchers for public utility vehicle (PUV) franchise holders.

The cash transfers will rise to P300 in 2019, and will be rolled out until 2020, while PUVs will receive at most P20,000 in 2019.

Budget and Management Secretary Benjamin E. Diokno told reporters yesterday that the crude oil is unlikely to stay above $80 until the end of the year.

“I don’t think it will stay at that level,” he said, pointing to the possible decline in demand as car manufacturers move away from gasoline or diesel-powered vehicles.

“We will follow the law. We will suspend it if necessary. We will not deprive the people (of this) social safety net,” he added.

The Development Budget Coordinating Committee is expecting Dubai crude to move between $55-70 per barrel this year, and $50-65 in 2019 until 2022.

According to Mr. Chua, fuel prices are too volatile to predict whether the $80 threshold will be breached long enough to warrant a suspension.

“We are not sure, because the projections are all off. So I don’t know if they are projecting correctly, if we have factored in all the geopolitical issues, I don’t know. But we have to observe it on a daily basis,” he said. —