The interagency Development Budget Coordination Committee said Thursday it decided to recommend the continued implementation of the second tranche of excise tax increase on petroleum products under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion law.
Finance Secretary Carlos Dominguez III said in a news briefing the DBCC decision followed the favorable outlook in world oil prices, as the cost of Dubai crude oil prices declined 14 percent from an average of $79 per barrel in October to $68 a barrel in November.
“The circumstances changed drastically,” Dominguez said, adding the DBCC acted based on facts. He said the DBCC “will keep an eye on the ongoing developments.”
Under the Train law, the government imposed an excise tax of P2.50 a liter on diesel and bunker fuel starting January this year. The rate will go up to P4.50 in 2019 and P6 in 2020.
The law provides that the increase in petroleum taxes will be automatically postponed if the average price of Dubai crude”•used as benchmark for Asia”• reaches $80 per barrel for three consecutive months before the next round of tax hike.
Dubai crude price, however, fell from its October peak and is now below $70 a barrel. The oil futures market expects the price of oil to further decline to below $60 per barrel in 2019, indicating a downward trend on world oil prices, according to Dominguez.
“The DBCC also took into consideration the adverse impact on revenues and expenditures for fiscal year 2019 should the government proceed with the suspension of the scheduled increase of excise taxes on petroleum,” Dominguez said.
The suspension was estimated earlier to result in a net revenue loss for the government of P43.4 billion for a 12-month suspension, assuming the Dubai crude oil prices would average $65 per barrel in 2019.
Economic managers said the erosion in revenue would lead to a commensurate decrease in government expenditures so as not to breach the target deficit level of 3.2 percent of gross domestic product in 2019.
Dominguez said together with other measures to increase food supply in the country, particularly rice, the suspension of the second tranche of excise taxes on petroleum was intended to curb inflationary pressure and relieve the Filipino people of the high prices of goods.
Dominguez said the DBCC would discuss with the Bangko Sentral ng Pilipinas this decision’s impact on inflation, saying the regulator was expected to make an announcement soon.
“Our recommendation to continue the scheduled increase of excise taxes on petroleum products will be further discussed in the Cabinet meeting on Tuesday, Dec. 4 and subject to the approval of President Rodrigo Roa Duterte,” Dominguez said.
He said given these developments, the DBCC revised its assumptions on Dubai crude oil prices from $75 to $85 per barrel to $60 to $75 per barrel in 2019.
Meanwhile, revenue collections are now targeted to reach nearly P3.2 trillion in 2019, while expenditures were seen to hit P3.8 trillion, maintaining the deficit at 3.2 percent of GDP.
The economic managers said they were confident that the Duterte administration’s investments in human capital and infrastructure development would continue as planned, which would propel the economic growth of the country into the target range of 7 percent to 8 percent in the medium term.
“This will enable the Philippines to attain upper middle income status by end-2019, and reduce poverty from 21.6 percent in 2015 to 14 percent in 2022,” Dominguez said.
Malacañang earlier gave the go-signal for the economic managers’ proposal to suspend the new round of oil tax hike next year, taking into account its contribution to inflation.
Inflation in October was unchanged at a nine-month high of 6.7 percent. This brought inflation in the first 10 months to 5.1 percent, above the upper limit of the target range of 2 percent to 4 percent for the year.