October 30, 2018

The Finance department in the Philippine is contemplating suspending the fuel excise tax hike. That is one of the new positive indicators that the country is serious about making life better for its citizens. The CNN Philippine had reported President Duterte will suspend the excise tax in January 2019. People see the announcement as too early and hoped that the government does not change its mind before then.

President Duterte made the last decision based on the recommendation from the review made by the Philippine economic managers. The recommendation to suspend the fuel excise tax hike next year is part of the palliative measures to ease economic pressure on the average Philippine citizens.

In a media briefing conducted by the Assistance finance secretary, the decision to suspend fuel excise tax hike has already been submitted to the office of the president and an official document confirming the suspension of the tax hike is still being awaited. President Duterte office has confirmed the receipt of this recommendation and the executive is on the process of reviewing it for the purpose of passing it into law or approving it.

Once the president is done reviewing the recommendation, an executive issuance will be made and announced as early as January 2019.

A partial suspension of fuel excise tax hike is in place by the finance department

With the recommendation for the fuel excise tax hike, still being held for final approval, the finance department has announced a partial suspension of increases in the fuel tax hike. According to the finance under-secretary, there wouldn’t be any need for the suspension of fuel excise tax hike to be adopted into a new law because the current tax reform for the Acceleration and Inclusion (TRAIN) law, has already made provision for the full suspension of such tax hike when the prices of a barrel of crude oil reaches or exceeds $80.

The Philippines are excited that the prices of crude oil are beginning to favor a country like Philippine that relies heavily on income generated from the sale of crude oil. Brent crude is oil has remained the benchmark for the prices of oil worldwide, likewise, Dubai crude oil has also reached an all-time high of $80.50 in the month of May before it dropped to $79.30 per barrel before the end of the month.

The current call for the suspension of fuel excise tax hike was actually made by the opposition senators in the Philippine parliament. The opposition senator had reported that there should be no new law because there is a provision already in the existing law that if prices of crude oil reach or exceeds $80 per barrel, there must be an automatic suspension and what everyone is waiting for now is the formalization of the suspension.

According to the opposition senators, the suspension of the fuel tax hike should only cover the increases that are projected for the first quarter of the year 2019 and such suspension will exclude the increases that have already been implemented in 2018.

What of the global oil prices decreases in 2019?

With the decrease in the global oil prices in 2018, there are serious concerns that such an issue may re-occur in 2019. If there is a decrease in oil prices in 2019, it is expected that the economic managers would have to review the suspension of the excise tax hike and there may be an increase or resumption of the excise tax hike. It is anticipated that any decrease in the oil price should be slower, and if that is the case in 2019, then the recommendation for the suspension of the excise tax increase will be sustained.

The Philippine TRAIN law took effect in January 2018 had directed an increase in excise tax that has been levied on oil products between 2018 and 2020. In 2019, it is expected that the excise tax will go up by ₱2 per liter starting in 2019 January. Though, President Duterte had decided to suspend the excise tax increase in January this year which according to the Finance secretary is as a result of inflation hitting an all-time high of 6.9% in September.

With the January 2019 suspension of increase in excise tax be an unnecessary suspension?

While many Philippine are optimistic that the suspension of the increase in excise tax will bring some relief, there are a number of agencies that believe that such suspension is outrightly unnecessary, the reason most of them gave is that such suspension may not curb inflation.

According to a researcher with Action for Economic Reform (AER), the fact that the Philippine government is monitoring the imposition of tariffs on foodstuffs such as rice, and the likelihood that oil prices may fall in 2019, means there is no need to suspend the oil excise tax increases – they believe that the solution to curbing inflation in Philippine is beyond suspending excise tax increases. According to another expert opinion, suspending the increase of excise tax duties, as a matter of fact, can reduce inflation by as much as 0.2% in 2019, despite the fact that the baseline forecast for inflation in the Philippine in 2019 stands at 4.3%. The experts even believe that there could be a greater reduction in inflation in 2019 if the fuel excites tax is maintained and then allowing the tariffication of rice to begin. As a matter of fact, the tarification of staples like rice can reduce inflation by as much as 0.7% by the year 2020.

Conclusion

Financial experts are of the opinion that the effect of oil prices fluctuations on the poor people of Philippine is much more than the effect of rice tarification, and towards this end, the president has ordered an urgent law to remove a cap on rice importation from the country, which means more revenue will be generated and probably inflation will be curtailed. With or without tarification of rice, the poorest of Philippine will certainly suffer if there is an increase in fuel excise tax in 2019, hence all efforts must be put in place to force the president to sign the removal of fuel excise tax, into law.