Oil prices soar to record high – not because of TRAIN Law

The previous weeks here in the Philippines have seen a lot of soaring highs – summer temperatures, fluctuating blood pressure among netizens and the public due to blow-by-blow political events, and most of all, skyrocketing fuel prices.

From motorists to commuters to activists march down and hostage the streets united toward this common cause, and that’s to complain about the sudden, back-to-back oil price hikes. And as a primary resort, they put the blame on the recently ratified TRAIN Law.

But there is absolutely no point in blaming the TRAIN Law for the jacking up of fuel prices, because said law has nothing to do with it in the first place.

Ongoing tensions in the international market

For starters, oil prices in the country are heavily affected not by domestic tax impositions per se, but by prices imposed by the international market. It is through the decisions of the Organization of Petroleum Exporting Countries or OPEC that fuel prices are determined by the end of the day. Domestic and international tensions that take place among and between OPEC member countries likewise contribute to the fluctuations of oil prices. Recently, these include reduced production of crude oil by Latin American exporters such as Venezuela and Iran, coupled with heightening political tensions between USA and Middle East oil producers. With these major players serving as the same roadblocks toward regulated oil prices, those directly hit by the price surge are oil-consuming countries, not just the Philippines.

At the same time, currency exchanges also play a significant role in oil price increase. With the current exchange rate between the Philippine peso and the US dollar, then it’s no surprise that oil prices are on a high as well.

What the TRAIN Law has to do with oil price hikes

The TRAIN law imposed an excise tax on fuel prices, which is then presented to the consumer market. But this excise tax may be suspended when fuel prices per barrel reach a certain ceiling point. In this context, the country looks at Dubai petroleum prices as basis of imposing regulatory measures, with a ceiling price of $80 per barrel. As of this writing, the government is eyeing to implement this suspension as the price of Dubai crude oil is now at $75 per barrel.

The suspension of excise tax on fuel once it hits the ceiling price is self-executory, but while the language of the law is clear, an IRR (implementing rules and regulations) still needs to be issued by the Department of Finance to prevent businesses from taking advantage of the situation and jack up the prices of consumer goods.

Not a good idea to suspend the TRAIN Law

Suspending the TRAIN law will only create more harm than good, according to Budget Secretary Benjamin Diokno, mainly because it would only upset revenue projections as the Bureau of Internal Revenue and the Bureau of Customs are already geared toward collecting taxes based on the law’s provisions.

This makes perfect sense because while there is an ongoing transition in fuel prices in the world market, the TRAIN law serves to put stabilizing measures on domestic prices, which in effect prevent them from being directly affected by fluctuating prices of goods on the global scale. At the same time, price transitions due to the implementation of the TRAIN Law have already been forecasted before the said law was put into place, and prices are expected to normalize by the middle of 2019.

While inflation has reached a 4.5 percent breach as of April 2018, price movement of consumer goods is still minimal, as per DTI.

What the public needs to know

The public has already been warned about the rise of fuel prices as early as December 2017. The Department of Energy has already stated that oil prices are expected to increase this year due to changing trends in the world market, so today’s price hikes should no longer come as a surprise – and rather should have been prepared for.

At the same time, the TRAIN law has safeguards that can be immediately put into action once the ceiling price is reached, and these safeguards allow both a protected measure for further price increase and the space for both businesses and consumers to adjust accordingly – and not merely play it by ear, which is what Sen. Bam Aquino wants the public to see and for the government to do.

Lastly, Filipinos do not deserve a hopscotch economy that relies on impulse and unfounded speculation rather than prudent market analysis, and this is exactly what the TRAIN law aims to eradicate.