Pressure to ‘suspend’ oil tax gains ground

Published July 8, 2018, 10:00 PM By Myrna M. Velasco

https://business.mb.com.ph/2018/07/08/pressure-to-suspend-oil-tax-gains-ground/

The weakening local currency and inflationary pressure on commodities may be invoked by the legislative branch as ground for suspension of excise taxes on petroleum products.

This will be on top of the $80 per barrel oil price trigger stipulated in the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

At this point, legislators are reportedly weighing the cost impact on consumers of the falling value of the peso versus the US dollar – for it to become an added argument or justification to temporarily halt the pass-on of the TRAIN-anchored excise taxes for products at the pumps.

Senate Committee on Energy Chairman Sherwin T. Gatchalian noted though that frail foreign currency exchange (forex) rate was not a provision under the TRAIN Law, but it can still be considered if it will immensely erode the purchasing power of Filipino consumers.

“There are other factors…like the exchange rate. If need be and we can sense it’s already a huge burden to consumers, then it may be a compelling reason. I will support the resolution to suspend the tax reform,” the lawmaker said.

The peso’s exchange rate against the greenback already surpassed R53 level, and that is becoming a worrying precept to many industries, especially those that are exposed to the volatility of foreign currencies.

It is worth noting that the Philippines is heavily dependent on imported oil, hence, the industry players are shelling out more dollars to procure oil commodities from offshore.

That added cost is subsequently passed on in pump prices.

In the adjustment of prices domestically, product costs as well as the forex are key components being factored in on the weekly cost swings at the pumps. And with oil being a prime commodity used in the production of goods and in the provision of services, consumers are doubly hit with inflationary impacts.

“We cannot discount other factors like the peso exchange rate. That’s not in the TRAIN Law, but as per observation, the forex is very volatile,” he said.

He added that at this stage this is “just a recommendation so the consumers are not unduly burdened.”

Under the TRAIN Act, excise taxes for petroleum products may be suspended in the second tranche if the average prices of the Dubai crude would hover at $80 per barrel within a three-month stretch.

Edginess had swamped the Philippine market after crude prices cognitively breached the $80 per barrel in May. Since then, however, it had gone back to the $73 to $75 per barrel for the Dubai crude, which is the benchmark for Asian oil markets. Although at this point, international experts are predicting a return beyond the $80 per barrel level this July, at least for a short period of time.

The petroleum tax suspension is a hot debate among policymakers, with the Department of Finance posing major objection to the proposal because this entails revenue losses vis-à-vis targets set under the TRAIN law.