Weak peso to help offset revenue loss – DOF

Published October 21, 2018, 12:00 AM

by manilabulletin_admin

By Chino S. Leyco

The projected revenue loss from the suspended increase in fuel tax could be reduced if the US dollar further appreciates against the peso next year, although consumers will still have to brace themselves in 2020 as the tax hike could double following the suspension.



Finance Undersecretary Gil S. Beltran said that the weakness of the peso would somehow help offset the projected losses from the suspended P2 per liter excise tax increase in petroleum originally scheduled in January next year.

The DOF estimated that revenue loss from the oil tax hike suspension could hit P41 billion, but Beltran explained that the national government’s revenues from oil imports are expected to increase by P2 billion for every P1 depreciation of the local currency against the US dollar. This means, the government will earn more pesos.

Last week, the economic team adjusted upwards its foreign exchange rate assumption of P50 to P53 to between P52 and P55 for next year until 2022.

“The gains from the exchange rate will be added to the projected higher collections of value-added tax (VAT) on petroleum goods,” Beltran said.

The finance official had said that the government would gain additional P14 billion from VAT on oil should the benchmark Dubai crude oil average $80 per barrel in 2019.

“If the [Dubai price] rate is higher than $80, then there will be additional gains. While the estimated loss from suspended excise tax hike is fixed because it’s not relative to value,” said Beltran, who is also the DOF’s chief economist.

The net revenue loss from the deferment of the fuel excise tax increase would be only P27 billion next year once the Dubai crude oil average $80 a barrel, Beltran said.

The finance official also estimated that the government is gaining P11 billion for every peso depreciation against the US dollar.

“About 18 percent of the total projected gains from forex will be generated by oil imports,” Beltran said.

Meantime, Finance Undersecretary Karl Kendrick T. Chua, clarified that the hike in fuel tax was just suspended not abandoned by the government, thus, once the world crude oil prices normalize the twin full-blown increase will be pass on to consumers.

Chua said that should the P2 per liter increase is deferred for the entire 2019, that suspended tax hike will be added to the third tranche of the fuel rate increase scheduled to take effect in January 2020.

“The suspension is temporary, and there’s the law that provides the scheduled increase. If we suspend for one year [2019], by 2020 you have to apply the full amount, that’s the minimum,” Chua said told reporters in an interview at the Department of Finance (DOF) headquarters.

The third increase of fuel tax under the tax reform for acceleration and inclusion (TRAIN) law costs at least P1.5 per liter depending of the variety of the petroleum products. In total, the tax hike by 2020 could reach P3.5 a liter because of the suspension.

Finance Secretary Carlos G. Dominguez III earlier said the government may need to defer some non-infrastructure projects next year amid looming suspension of the higher excise tax on petroleum products.

The DOF, however, wants to ensure that the suspension paper approved by the President will also contain a provision about the resumption of the tax increase once the crude oil average price falls below the $80 per barrel threshold.

Based on the document presented to the economic managers during the inter-agency Development Budget Coordination Committee (DBCC) meeting last week, the DOF recommended the inclusion of this provision:

“In the event that there is suspension of the implementation of the scheduled increase in excise tax and when at any given time within the year, the three-month rolling average Dubai Crude Oil price based on MOPS fall below $80 per barrel, the scheduled increase for that year shall resume. The resumption of the increase in excise tax shall apply for the rest of the year. The first trigger period shall be from January 1 to March 31.”

MOPS or the Mean of Platts Singapore is the average of a set of Singapore-based oil product price assessments published by Platts, a global energy information provider.