In a Cabinet meeting yesterday, President Rodrigo R. Duterte approved the recommendation of the economic managers to continue the implementation of the second tranche of excise taxes on petroleum products effective January 1, 2019. The recommendation of the Development Budget Coordination Committee (DBCC), deliberated upon in a special meeting last November 29, was in light of falling world oil prices and moderating inflation pressures.
“Economic conditions have changed from the time the suspension was recommended, and it is our duty as economic managers to respond to these developments. That is the crux of economic planning,” said Budget and Management Secretary Benjamin E. Diokno.
At the time the DBCC convened its special meeting, Dubai crude oil prices have plummeted by 14 percent – from an average of USD 79 per barrel in October 2018 down to USD 68 per barrel in late November 2018. Furthermore, the oil futures market projects that world oil prices will fall further to below USD 60 per barrel in 2019, indicating a downward trend in prices.
Even with the additional PhP 2 per liter with the second tranche of oil excise taxes, that pump prices will be lower by about PhP 10 to PhP 12 compared to its peak in October 2018. Diesel at its peak was PhP 49.80 per liter. It is projected to be PhP 37.76 per liter in January 2019, inclusive of the second tranche of petroleum excise taxes.
Similarly, gasoline (95 octane) at its peak was PhP 60.90 per liter. It is projected to be PhP 50.82 with the PhP 2 additional excise tax in January 2019.
Second, the condition for suspending the second tranche of oil excise taxes does not exist. According to Section 43 of Republic Act 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN), the scheduled increase in the excise tax on petroleum products can only be suspended when the average Dubai crude oil price based on Mean of Platts Singapore reaches or exceeds USD 80 per barrel within a 3-month period.
Third, the suspension of the second tranche of oil excise taxes is estimated to result to a full-year net revenue loss of PhP 43.4 billion, assuming Dubai crude oil prices average USD 65 per barrel in 2019. “As you know, we are trying to maintain the deficit at a sustainable level of 3.2% of Gross Domestic Product in 2019,” said the Budget Secretary. “A loss of PhP 43.4 billion in revenues will lead to a commensurate decrease in government expenditures,” he added.
Lastly, inflationary pressures have subsided with government efforts to boost food supply, particularly staple commodities like rice, meat, and vegetables. These measures, combined with a cumulative interest rate hike of 175 basis points since May 2018 by the Bangko Sentral ng Pilipinas (BSP), are finally showing signs of easing price pressures. Hence, the BSP projects that inflation would be back to the 2% to 4% range in 2019 and 2020.