By Chino Leyco
The Department of Finance (DOF) is reviewing anew the planned temporary suspension of the scheduled increase in fuel taxes effective January next year as global crude prices continue to fall.
Finance Secretary Carlos G. Dominguez III
(Manila Bulletin)
Finance Secretary Carlos G. Dominguez III said that the “unexpected” drop in fuel prices warrant a review of the suspended P2 per liter fuel tax increase with global crude prices dropping to around $55 per barrel.
“We are currently again reviewing it,” Dominguez told reporters when asked if the Duterte administration will still proceed with the suspension of the additional fuel tax, which is under the first tax reform law.
Oil players implemented their seventh round of oil price rollback this week after petroleum slump in the world market fell to its lowest level since October 2017.
“This is a totally unexpected development although it’s a pleasant development,” Dominguez said. “I hope we have more developments like this but we are currently reviewing the situation especially now that prices have gone down.”
He also said the lower fuel prices will have a big effect in the reduction in inflation.
Under the Tax Reform for Acceleration and Inclusion Act (TRAIN), the next P2 increase in fuel tax scheduled for January 1, 2019, will be suspended once the Dubai crude price averages above $80 per barrel in the final three-months of this year.
“The law is very clear. The law says it has to be $80 and above for three months so we are trying to figure out a way of violating the law, actually. So it’s under review at the moment,” Dominguez said.
While President Duterte already approved the suspension, Dominguez said “again we have to look at the facts on the ground, but most likely we will do it depending on the prices.”
In October, the economic managers approved the suspension of the fuel tax increase amid skyrocketing crude costs that already breached the $80 level during the month.
“Two months ago, I thought it was going to about $80. The projections were $80, actually we were wrong, the market was wrong,” Dominguez said.
Because of its volatility, Dominguez said they cannot say outright if the government would recall the tax increase suspension, adding “everything is possible because we cannot project.”
The DOF earlier estimated that higher costs of oil pump will boost government’s value-added tax (VAT) collection next year by at least P14 billion should the Dubai crude price average $80 per barrel.
The estimated gains from VAT will help lessen the revenue impact of the suspended P2 per liter fuel tax increase.
Based on DOF estimates, the suspension of the oil tax increase would result in P41 billion in foregone revenues for the entire 2019.
Dominguez said the government may need to defer some non-infrastructure projects next year once the planned suspension of the higher excise tax on petroleum products is implemented.
He, however, expressed optimism that the suspension would not be in place for the entire 2019.
Over $60 per barrel
Oil prices on Monday clawed back some losses from a nearly 8 percent plunge the previous session, with Brent jumping back above $60 per barrel, but sentiment remained weak amid a broad sell-off in financial markets in past weeks.
Front-month Brent crude oil futures rose $1.31, or 2.2 percent, to $60.11 per barrel by 0643 GMT.
US West Texas Intermediate (WTI) crude futures, were up 66 cents, or 1.3 percent, at $51.08 per barrel.
The gains partly made up for Friday's selloff, which traders have already dubbed 'Black Friday'.
Reacting to Friday's falls in Brent and WTI, China's Shanghai crude futures on Monday fell by 5 percent, hitting their daily downside-limit.
The downward pressure comes from surging supply and a slowdown in demand growth which is expected to result in an oil supply overhang by next year.
"2019 will be a choppy year for the oil market as questions surrounding the prospect of a slowing global economy and a supply surplus are expected to increase," analysts at Fitch Solutions said on Monday.
Fitch said that even an expected supply cut led by the Organization of the Petroleum Exporting Countries (OPEC) following an official meeting on Dec. 6 "may not be enough to counteract the bearish forces." (With a report from Reuters)