DOF says gov’t can’t suspend fuel excise taxes under Train

Contrary to earlier pronouncements that the government can suspend fuel excise taxes when global oil prices reach $80 a barrel, the Department of Finance clarified Wednesday that the Tax Reform for Acceleration and Inclusion (TRAIN) Act only provided for the possible suspension of further rate increases scheduled in the coming years.

Presidential Spokesman Harry Roque reportedly said last Tuesday that the government can suspend oil excise tax collections when world prices hit the said level.

DOF officials, however, pointed to the provision of the TRAIN Law, as follows: “For the period covering 2018 to 2020, the scheduled increase in the excise tax on fuel as imposed in this section shall be suspended when the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) for three months prior to the scheduled increase of the month reaches or exceeds $80 per barrel.”

The TRAIN Law tasked the DOF to perform a yearly review of the implementation of the higher excise taxes slapped on fuel products.

In case the scheduled increase will be suspended due to elevated global prices, it nonetheless “shall not result in any reduction of the excise tax being imposed at the time of the suspension.”

Under the TRAIN Law, an excise tax of P2.50 per liter was imposed on diesel and bunker fuel starting this year. This would go up to P4.50 in 2019 and P6 in 2020.

The excise tax on gasoline increased from P4.35 per liter to P7 this year and then to P9 in 2019, and P10 in 2020.

Signed by President Duterte in December, Republic Act No. 10963 or the TRAIN Law since Jan. 1 this year jacked up or slapped new excise taxes on oil, cigarettes, sugary drinks and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.

In a note to clients on Wednesday, Metropolitan Bank and Trust Co. noted that “global oil prices have more than doubled since bottoming out in 2016 amid strong demand and production cuts.”

“Last year, the rise was actually taken as a positive sign that the global economic recovery is [in] full swing. However, a number of recent events and drivers have made markets worried,” Metrobank research analyst Pauline May Ann E. Revillas said.

“Geopolitics has taken over the oil market, pushing oil prices to three-year highs of $80 per barrel. President Trump recently decided to back out of the Iran nuclear deal and reinstate sanctions. As a result, it is estimated that Iran’s exports this year will likely to take a 500,000-barrels-per-day (bpd) hit from its roughly 2.2 million bpd current exports,” Revillas explained.

“Another threat to the tight supply is the ongoing collapse in Venezuela’s production. So far, this has taken some 700,000 bpd out of the global oil market. The potential supply shortfall from Iran and Venezuela could pose a major challenge for producers to fend off sharp price increases and fill the gap,” Revillas added.

“Amid the soaring oil prices, demand is seen to slow down in the second half, with the International Energy Agency (IEA) lowering its 2018 demand forecast to by 40,000 bpd. The IEA noted that while the global economy is still doing well and that underlying demand is still strong, it is almost certain that the rise in oil prices will eventually affect demand growth,” according to Revillas.

“The Opec will meet on June 22 to discuss the state of the oil market. Until then, the global economy will likely remain on edge and see how this price spike will unfold,” Revillas said, referring to the Organization of the Petroleum Exporting Countries.