DOF RESOLVE TO HIKE EXCISE TAXES ON OIL PRODUCTS STAYS
In the midst of crude production cuts and continuing oversupply
If the international price movements of oil products were to be the basis, motorists can so far heave a sigh of relief.
Latest data from the Department of Energy showed that during the April 17 to 21 trading week, crude benchmarks “dropped by an average of almost two dollars, reversing from previous week increases.”
The decline was attributed to “reports of increasing US crude production as oil shale drilling activities increased” as well as to the plans of Organization of Petroleum Exporting Countries “to extend output cuts for another six months.”
The latest DOE oil monitor further noted that overall, Dubai crude decreased by almost $2 per barrel during the April 17 to 21 trading week compared to a week ago, while the prices of gasoline and diesel based on the Mean of Platts Singapore (MOPS) benchmark for refined petroleum products dropped by about a dollar for the same period.
Stable prices
“Oil prices have remained largely stable.... Although there have been production cuts, there is still an oversupply of petroleum due to low demand. And in the United States, they are continuing to build inventories given the oversupply from the production of shale,” Melita Obil- lo, director of the Oil Industry Management Bureau, said in a briefing late last month.
While oil prices are usually subject to volatility, there is so far no indication of any unwanted spikes in the near future.
Good news, right? But that’s just one side of the story.
If the Duterte administration had its way, diesel prices may likely increase by a total of P6 a liter over the next three years, once the proposed comprehensive tax reform package is okayed and implemented.
“Fuel prices in the first quarter of 2017 are lower by 65 centavos a liter for diesel and 30 centavos a liter for gasoline compared with 2016,” Fernando L. Martinez, chairman of the Eastern Petroleum Group of Companies, said in an interview.
“Due to combination of higher (global) supply and prospects of additional capacities plus the advent of renewable energy that continuously displaces fossil fuels, prospects of stable and lower oil products appear to be greater.
"Hopefully, this prognosis becomes a reality so that the government’s plan to impose additional taxes on fuel in the next three years will not be too inflationary and adverse to consumers,” Martinez noted.
A good time
Based on news reports and official releases from the Department of Finance over the past four months, this was a good time to raise excise taxes on oil products—which have remained unadjusted over the last two decades—given declining global oil prices.
“The current gasoline excise tax rates have not changed for the last 20 years while diesel has been tax exempt for the last 12 years.
"These rates, which have not been corrected to account for inflation, has led to a massive revenue loss of about P145 billion (in 2016 prices), which represents more than 1 percent of the GDP,” Finance Undersecretary Karl Kendrick T. Chua was quoted in a statement issued earlier this year.
“Our proposal to adjust the fuel excise tax to about P6 per liter merely updates the rates to current levels as this represents the cumulative inflation since 1997.
"Even with the adjustments, the retail prices of gasoline and diesel will still be much lower than the rates during the oil price shocks of 2011 and 2012,” Chua had said.
The Duterte administration’s tax policy reform program, however, will have measures that are expected to “cushion the impact of higher fuel excises on transportation, commuting and food costs for the poorest 50 percent,” Chua had assured.
Removing subsidies for the affluent
Such initiatives included the reduction of personal income tax rates, which is expected to result in higher take-home pay.
Chua, in a separate statement, was further quoted as saying that the DOF’s plan to hike excise taxes on fuel would ultimately remove the “subsidy” long being enjoyed by the affluent who use fuel.
Chua had said that “higher fuel excise is a highly progressive tax because we would be removing subsidies on the fuel consumption of the top 10 percent of households with monthly incomes of around P115,000 and above who consume almost 51 percent of fuel in the country.
“The top 1 percent of households, with monthly income of around P293,000 each, account for around 13 percent of the fuel consumption in the country.”
Indeed, the prospect of higher fuel prices may be daunting for many motorists, who have to contend with other costs related to maintaining a vehicle.
Timetable yet unclear
It isn’t clear yet as to when this comprehensive tax reform package—of which the increase in excise taxes for oil is just one component—will be finally implemented.
It does not leave one any choice should lawmakers decide that such tax reform policies are crucial to sustaining the strong growth of the Philippine economy.
One can now only hope that we never see again the record high levels in oil prices as seen in 2008, when local gasoline prices had shot up to P60 a liter.