Good news on global oil prices

THE good news is that global oil prices are beginning to fall as Russia and members of the Organization of Petroleum Exporting Countries (OPEC) announced that they are meeting soon on a plan to increase their oil production.

Global prices had started to rise after the United States rejected the 2015 agreement between Western powers and Iran, raising fears that Iran would be forced to reduce its oil exports. As Iran is the world’s second biggest oil exporter after Saudi Arabia, world prices began to rise in January. Philippine oil companies correspondingly raised their prices of gasoline, diesel, and kerosene. And when these fuel prices rise, consumer prices also rise. This has been the case in the Philippines these last few weeks.

The Philippine government’s response to these developments has been to reexamine the Tax Reform and Acceleration Inclusion (TRAIN) law which had contributed to the rising prices because it imposed an excise tax on diesel. If the global oil price had hit $80 per barrel, the government would have had to suspend the TRAIN excise tax on diesel. But because of the good news that global prices are beginning to fall, it does not now look like this will happen.

The government is also looking at a proposed TRAIN 2 which, among others, proposes that the tax incentives now enjoyed by foreign investors now thriving in the special economic zones all over the country should not be perpetual; they should end after a specific period of time. It is feared by some that as this incentive is withdrawn, the foreign investors may move out of the country.

It is good that the government is conducting this review of TRAIN and its proposed sequels, lest these tax measures lead to unexpected difficulties and suffering for ordinary people. The TRAIN may not have been the primary reason for the rising consumer prices but it certainly contributed its share.

The world fuel situation remains uncertain with the Russia and the OPEC nations still to meet and start raising the world supply of oil that would, in turn, lead to a lowering of global fuel prices. Philippine officials must do their share by keeping a close daily watch on local prices, ready to take the needed remedial measures, including – if needed – a suspension of the new taxes under TRAIN, to stop any undue increase in consumer prices.