DOF bucks amendments to oil tax laws

Published October 28, 2020, 9:08 AM

by Myrna M. Velasco

Amid the tax predicaments raised by Petron on its refining business, the Department of Finance (DOF) indicated that it is not amenable to proposed tweaks in the country’s tax laws as applied to the supply chain of the downstream oil sector.

Finance Secretary Carlos G. Dominguez III (MANILA BULLETIN FILE PHOTO)

“We don’t need to change our tax laws on this,” said Finance Secretary Carlos G. Dominguez III, while stressing that refinery closures are happening worldwide because margins are getting squeezed.

“Big oil companies have been shutting down their refineries in various parts of the world,” the finance chief noted.

He expounded that in a refinery business, “there may be market and timing issues –such as importing crude at a high price, then after refining, world crude prices might be lower, thus, refining margins could be lower.”

That is in contrast to the business model of oil importers, he said, wherein they can sell their products right away, therefore, making them “less vulnerable to oil price movements,” and Dominguez opined that “it’s actually a supply chain issue rather than a tax issue.”

Petron Chief Executive Officer (CEO) Ramon S. Ang himself acknowledged that “only Congress can correct (the tax laws), allowing us to pay tax when we sell our products, just like the importers.”

The Department of Energy (DOE), for its part, said it will look into the taxation concerns raised by Petron, but it will carry out this process in coordination with the DOF.

Paramount to the department’s concern, according to Energy Secretary Alfonso G. Cusi, is for them to evaluate “how a closure scenario would impact pricing, as well as the country’s energy security.”

In the Philippines, pump prices move on a weekly basis – and it is often the dictates of market competition that prevails. Imperatively, cost movements are based on swing of prices in the international market because the country has always been import-dependent by 95 to 96-percent of its oil requirements.

The DOE said it has yet to receive formal notification from Petron on its refinery closure plan. But at the time it will arrive at that business decision, the department said it will “respect the management’s decision.”

Former Trade Undersecretary and Laban Konsyumer Inc. President Victorio Mario Dimagiba contended that the oil refiners should have seen the writing on the wall way back the time that the Tax Reform for Acceleration and Inclusion (TRAIN) Act was still under deliberations.

“The fuel excise taxes of the TRAIN law makes refinery operations in the country no longer viable. Petron and Shell should have read this in 2018 – that TRAIN was not equitable tax policy at their end of the business,” he said.

Relative to the shifting landscape of the country’s downstream oil sector, Dimagiba is proposing that the DOE must review the existing price formula, and that must already be anchored on an industry leaning on 100-percent importation of finished products, and such “may require an amendment to the Oil Deregulation Law.”