Government calls off plan to suspend oil excise tax hike
MANILA, Philippines — President Rodrigo Duterte’s economic managers on Thursday called off their plan to suspend the next round of oil tax increase next year, citing the recent drop in world crude prices.
In a televised press conference, Finance Secretary Carlos Dominguez III said the Cabinet-level Development Budget Coordination Committee took into consideration the adverse impact on government revenues and expenditures should policymakers proceed with the postponement of oil tax hike.
“The recommendation comes in light of the favorable outlook in world oil prices, where the Dubai crude oil prices have gone down by 14 percent from an average of $79 per barrel in October down to $68 per barrel so far in November,” Dominguez said. “More so, the oil futures market projects the price of oil to decline further to below $60 per barrel in 2019, indicating a downward trend in world oil prices.”
“With month-on-month inflation moderating due to supply-side reforms initiated by the government, coupled with falling petroleum prices in the world market, the DBCC deems the suspension unnecessary,” the Finance chief added.
Inflation clocked in at 6.7 percent in September and October, the fastest pace in nearly a decade. Year-to-date, inflation averaged 5.1 percent, well above the government’s target range.
To combat surging prices, the Duterte administration previously said it would suspend an increase in oil taxes scheduled to be levied in January next year. This is in addition to recent measures announced to lower food prices such as liberalizing the importation of rice.
Under the Tax Reform for Acceleration and Inclusion Act, or TRAIN law, the increases in petroleum taxes will be automatically suspended should average price of Dubai crude — used as benchmark for Asia — reach $80 per barrel for three consecutive months before the next round of tax hike.
But global oil prices have been declining since the start of October, when it hit highs not seen since 2014 and when oil traders were forecasting prices to reach $100 a barrel.
According to the central bank, delaying the latest excise tax hike on fuel in whole 2019 could shave 0.2 percentage points off inflation next year.
The Department of Finance estimated that deferring the additional excise taxes on fuel in entire 2019 could result in foregone revenues of P43.4 billion, assuming Dubai crude oil prices average $65 per barrel next year. This would prompt the government to reduce spending to avoid breaching the target budget deficit level of 3.2 percent of gross domestic product set for 2019. — Ian Nicolas Cigaral
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