Good news on global oil prices

Published June 8, 2018, 12:05 AM

by Mario Casayuran and Vanne Elaine Terrazola

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The good news is that global oil prices are beginning  to fall as Russia and members of the Organization of Petroleum Exporting Countries (OPEC)  announced that they are meeting    soon on a plan to increase their oil production.

Global prices had started to rise  after the United States rejected the  2015 agreement between Western powers and Iran, raising fears that Iran would be forced to reduce its oil exports. As Iran is the world’s second biggest oil exporter after Saudi Arabia,  world  prices began to  rise in January. Philippine oil  companies  correspondingly  raised their prices of gasoline, diesel, and kerosene. And when these fuel prices  rise,  consumer prices also  rise. This has been the case in the Philippines  these last few weeks.

The  Philippine  government’s response to these developments has been to reexamine  the  Tax Reform and Acceleration Inclusion (TRAIN) law which had contributed to the rising prices because it imposed an excise tax  on diesel.  If the global oil price had hit $80 per barrel,  the government would have  had  to  suspend  the TRAIN excise tax on diesel.  But because of the good news that global prices are beginning to fall, it  does  not  now look like this will  happen.

The government is also looking   at  a proposed TRAIN 2  which, among others, proposes  that  the tax incentives now enjoyed by foreign investors now thriving in the special economic zones  all over the country should not be perpetual; they should end after a specific  period of time. It is feared by some that as this incentive is withdrawn, the foreign investors may move out of the country.

It is good that the government is conducting this review of TRAIN  and its proposed sequels, lest  these tax measures lead to unexpected difficulties and suffering for ordinary people. The TRAIN  may not have been the primary reason for the rising consumer prices but  it certainly contributed its share.

The world  fuel situation  remains uncertain  with the Russia and the OPEC nations still   to meet and start  raising the world supply of oil that would,  in turn,   lead to a lowering of global fuel prices. Philippine officials must do their share by keeping a close daily watch on local prices, ready to take the needed remedial measures,  including – if needed – a suspension of the new taxes under TRAIN,   to stop any undue increase in consumer prices.

 
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