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Govt allots P2b for fuel marking

The government is spending P2 billion next year for the fuel marking program in a bid to curb smuggling and misdeclaration of petroleum products, Finance Secretary Carlos Dominguez III said in a news briefing Thursday.

“By spending P2 billion, which is one month’s collection, additional collection from the Bureau of Internal Revenue will probably yield between P25 billion and P40 billion,” Dominguez said.

“So it is not only raising revenues through taxes but with actual implementation, and I tell you the implementation is getting serious,” Dominguez said.

Fuel marking is a system where the government will use chemicals and advance technology to track fuel products being imported into, processed, marketed and traded in the country to prevent smuggling, tax evasion or in some cases, subsidy abuse.  

Finance Undersecretary Karl Kendrick Chua earlier said under package one of the Comprehensive Tax Reform Program, the fuel marking plan would be implemented beginning next year by the Bureau of Customs with the assistance of the BIR. The procurement process for the service provider would be done through competitive bidding.

The Finance Department expects to award the contract in the latter part of 2017 so that the successful bidder would have enough time to roll out the system by ‪Jan. 1, 2018, Chua said.

Implementing a fuel marking system is among the provisions under the substitute House Bill No. 5636 which was approved on May 3 by the House ways and means committee covering the first package of the CTRP.

Chua said the project cost for a five-year implementation was expected to be fully recovered as early as the first year of implementation as the unit cost of fuel marking would be only 9 centavos per liter.

The Finance Department estimates that revenue losses (VAT and excise taxes) from smuggled or misdeclared fuel reached P26.87 billion or $565.68 million in 2016 alone.  

The Asian Development Bank pegged the losses at a higher P37.5 billion while a study commissioned by the local oil industry put it at P43.8 billion per year. 

The Institute for Development and Econometric Analysis said that “smuggled gasoline accounts for an average of 23 percent of gasoline consumption from 2000 to 2006,” while “smuggled diesel accounts for an average of 6 percent.” 

Revenue collections from petroleum products amounted to P52.56 billion last year.  Of this amount, the BIR collected P13.22 billion in the form of excise taxes and P2.11 billion in VAT. The BOC collected P10.92 billion in fuel excise taxes and P26.30 billion in VAT.

The fuel marking and monitoring system was supported by various groups who accepted it as a way to prevent oil smuggling and complement efforts at improving the collection of fuel excise taxes.

Officials of Dow Chemical, SICPA-Global Fluids International, Authentix and United Color Manufacturing Inc., who attended one of the hearings of the House ways and means committee, said that a fuel marking system is an “economic, commercial, health, safety and environmental” concern that should be institutionalized by the government to complement its proposal to adjust fuel excise tax rates as part of the CTRP.

Roberto Batongbakal, who represented Dow Chemical, told the panel that on top of helping curb smuggling, fuel marking would also ensure that oil products sold in the market were of high quality, safe, highly regulated and complied with the country’s environmental laws.

Gadi Gonen, the managing director of the Switzerland-based SICPA-GFI, said fuel marking would thwart oil smuggling, which terrorist and organized crime groups resorted to in order to raise funds.

Ramon Lacdan, the local manager of the Pennsylvania-based United Color and Joel Fischl, managing director for Asia of the Texas-based Authentix, agreed with SICPA and Dow Chemical representatives that fuel marking would help the government increase tax revenues from oil products and protect consumers.

Topics: Finance Secretary Carlos Dominguez III , fuel marking program , smuggling , misdeclaration of petroleum products
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