DOF: Suspension of fuel tax hike announced early 'to anchor inflation expectations'

MANILA, Philippines — Malacañang is open to suspending the scheduled increase in excise taxes on oil even if the proposal could lead to billions in foregone revenues.

Presidential aide Christopher Go said the impact of rising prices on the poor would be the government's primary consideration in deciding whether to put on hold the next round of oil excise taxes hike.

He said the administration would also consider factors like the revenue impact of the proposal and the effects of inflation in making a decision. 

"I heard that a resolution has been filed in the Senate calling for the suspension of excise tax increase due to high inflation. We are open to it but we have to consider what is in the TRAIN (Tax Reform for Acceleration and Inclusion) law," Go said in a statement. 

"We are balancing everybody's interest. We are considering the fact that the suspension of the excise tax increase would lead to maybe about P40 billion loss for the government. But despite the situation, the primary consideration of the government is the effects (of higher prices on) our poor countrymen," he added.

Earlier, Senate Minority Leader Franklin Drilon said Duterte could ask lawmakers to pass a resolution that would allow him to suspend the excise taxes on petroleum products.  

Go said the president is monitoring the prices of oil and other commodities to mitigate the effect of inflation, which hit a record-high 6.7 percent last month.

"The government is looking into all available options to cushion the effects of rising oil prices," Go said. 

Under the TRAIN law, the excise taxes on oil products would be gradually increased from 2018 to 2020. The next round of increase will be implemented starting Jan. 1, 2019. The increases can be temporarily suspended if the average price of Dubai crude based on Mean of Platts Singapore reaches or exceeds $80 per barrel from October to December 2018. 

Last week, President Rodrigo Duterte said he was willing to put on hold the upward adjustments in the excise tax on oil. 

'Early announcement of suspension mechanism'

Finance Assistant Secretary Tony Lambino said Duterte made an early announcement on the suspension to "anchor inflation expectations." He said the current price and multiple estimates of crude prices over the next two months show that the average price would stay above the $80 threshold. 

"It is therefore being announced early that the suspension mechanism will be activated," Lambino said in a statement. 

"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," he added. 

Confusion arose Sunday after Go said the president has signed a document suspending the excise taxes on oil. 

"The president and the executive department is now looking into the temporary suspension of the next increase of oil excise tax rates in 2019. This is scheduled to be imposed by January of next year as mandated by the TRAIN law but to arrest the rising price of oil and its effects on the inflation rate, we will defer implementing it until the right time," he said during a Department of Agriculture event in Taguig  on Sunday morning.

Go later on clarified that what the president signed was the document certifying as urgent the immediate enactment of the rice tariffication bill.

The bill replaces quantitative restrictions on rice and replace it with a tariff. The passage of the bill is expected to improve availability of rice, address artificial rice shortages, and reduce the prices of rice.

Go noted that the Dubai crude average breached $77 in September. If the average increases in the next three months to more than $80 per barrel, the government would consider suspending the increase in oil excise taxes come January, he added. 

Lambino said Duterte was confident that the announcement on the suspension of excise tax increase would 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.

"The prices of basic goods have gone up and the government recognizes that those who have been affected the most are poor Filipino families who likewise need the most help," the finance official said. 

"It is for this reason that the president issued Administrative Order 13 and a series of Memorandum Orders to stabilize prices and the supply of basic agricultural products for all Filipino consumers," he added, referring to the order removing non-tariff barriers and streamlining procedures on the importation of agricultural products. 

'Inflation to remain high despite suspension'

Last week, Lambino said inflation would remain high even if the increase in the excise taxes on oil are suspended. 

"I think we also need to manage the expectations in that sense that if Congress decides to create a new suspension mechanism, the prices of oil would not go down that much because the import price has risen from about $40 per barrel to above $80 per barrel. The import price is something, unfortunately we do not control because we are not an oil producer. We are a price-taker," he said in a press briefing last Wednesday. 

The Finance official said inflation would still hit 6 percent to 6.3 percent instead of 6.7 percent even without the TRAIN law. 

"The 75 percent will be there whether there is TRAIN or not. The inflation will remain high," Lambino said. 

"If you look at the food versus non-food analysis, food is accelerating while non-food is decelerating in terms of the inflation rate. So that’s why the economic development cluster prioritized immediate actions to bring down the prices of food by increasing supply."