What Happens When The Fuel Excise Tax Is Suspended Next Year?

Due to mounting pressure from different sectors, including the President’s allies, the Duterte administration backpedaled on the fuel excise tax.

Department of Finance (DOF) Secretary Carlos Dominguez announced that President Rodrigo Duterte will issue a suspension of the fuel excise tax’s second tranche under the Tax Reform Acceleration and Inclusion (TRAIN) Law.

Oil Excise Tax Suspended. What Does This Mean For You

Dominguez said the administration aims to curb the rising inflation rate, which posted an all-time high escalation at 6.7 percent in September.

“After consulting the leadership of both the Senate and the House of Representatives, as well as the economic team, the President is confident that this course of action will help anchor inflation expectations for the coming year, allow the public to manage their finances better, and disallow hoarders and profiteers from taking advantage of the situation,” he said.

“The President is making an early announcement of the temporary suspension of the January 2019 oil excise increase under the TRAIN Law. This announcement is being made two months before the time required by law, to proactively anchor inflation expectations and enhance the welfare of the Filipino people,” Dominguez added.

What might have been

Under the excise tax provision of the TRAIN Law, the government was to impose tax on petroleum products from 2018 to 2020 to boost its revenue collection. The tax reform program of the government added P2.50 and P7 per liter on diesel and gasoline, respectively.

Had the government not planned to suspend the second tranche of the fuel excise taxes, the rates would have gone up by P2 on both diesel and unleaded gasoline by 2019.

How will this affect the prices of oil in the future and what are the other factors in play with the continuous redlining of gasoline prices in the country?

(Read: Fuel-Saving Tips: How To Save Gas On Manual And Automatic Cars)

Pointing fingers

Since the government enacted the TRAIN Law, the government has been vehemently denying that the Duterte administration’s tax reform is the one responsible for the decelerating economy.

Last September, Finance Undersecretary Tony Lambino denied that the TRAIN was responsible for the rising inflation rates, particularly the hefty taxes on petroleum goods.

The Undersecretary said that people clamoring for the suspension of petroleum excise tax should be reconsidered because its effects would not make a big difference to the skyrocketing prices of oil goods.

“Without TRAIN, inflation would still be high. For those calling for the suspension of oil excise tax, it will lower the price a little bit, but probably not as much as people think,” Lambino said in a report by ABS-CBN News.

However, since the implementation of TRAIN last January, the Philippines’ inflation rate has been on a steady rise. Before 2018, the country’s inflation rate was on a steady decline, with December 2017’s rate at 2.9 percent. However, it quickly climbed by 0.5 percent by the next month and it has been on a steady climb ever since.

“The Philippines’ annual inflation rate rose to 6.7 percent in September of 2018 from 6.4 percent in the previous month and compared to market expectations of 6.8 percent. It is the highest reading since February 2009, due to a surge in prices of food and a faster rise cost of transport,” according to a report by Trading Economics.

Currently, the country’s inflation rate is at 6.7 percent, which has been the highest reading in less than a decade. In a report by the Philippine Star, ANZ research predicts that the rate for the fourth quarter of 2018 “will remain above 7 percent.”

External factors

In tune with the rhetoric of the other agencies, the Department of Energy (DOE) keeps a list of the many factors that can affect the price of goods.

On the agency’s website, they have key elements as to how political and economic events shape the price of petroleum in the market. Some of the recently cited geopolitical events that spur global crude oil price hike are the following:

  • US Secretary of State Michael Pompeo spoke with Saudi Crown Prince Mohammed bin Salman Wednesday as oil prices reached four-year highs and the Trump administration continues to pressure Saudi Arabia to boost output.
  • Saudi Arabia and Russia are boosting output to record levels as the market frets a shortage when US sanctions on Iran go into force next month—but insist their pumping policies are dictated by customer demand, not geopolitics.
  • Russian President Vladimir Putin Wednesday criticized the US sanctions against Iran and other producing countries as they are destabilizing the markets and pushing oil prices up, at a time when OPEC-led group had achieved the goal to balance the markets.

In addition to these, the recent crisis between the United States and Saudi Arabia over a missing foreign journalist has been touted by experts to become a catalyst for higher oil prices.

After US President Donald Trump threatened to punish the Gulf country for its alleged role in the disappearance of a known Saudi critic, the Saudi government responded with a statement that it would retaliate with greater magnitude. In addition, it reiterated the country’s place in the global economy to be an “influential and vital role.”

Currently, the global price of oil is $80 per barrel, with no signs of slowing down in the near future.

(Read: The Top 10 Most Fuel-efficient Cars Available In The Philippines Today)

Suspension of disbelief

With the President planning to waive the increase in excise tax on fuel goods next year now slated, what’s in store for us?

For starters, the government estimated that the suspension of the second tranche on excise taxes will result in P40 billion potentially up in smoke. According to Lambino, they’re already looking into some of the projects that will be deprioritized because of future losses in the government coffers.

Meanwhile, the freeze order on the fuel excise tax is also touted to manage the rising inflation rate. With the dismal prediction for the remaining months of 2018, this can potentially mitigate the rising cost of goods—which is almost always reliant on the pump prices of petroleum.

While it seems like the Filipinos are saved from a higher oil price hike next year, the said suspension will not do anything to lower the cost of gasoline and diesel in the near future. As tensions start to mount in oil-producing regions, the risks will continue to push the prices upward.

Sources: Daily FX, Oilprice.com, Index Mundi, Oilprice.com, Bloomberg, ABS-CBN, The Philippine Star