DOF proposes fuel tax freeze for 3 months in 2019 to ease inflation

The suspension of additional excise on fuel may be in effect for only three months in 2019, depending on prevailing global oil prices, according to the Department of Finance (DOF).

Speaking at a Senate hearing on Wednesday, Finance Undersecretary Karl Kendrick Chua said the country’s economic managers were still deliberating on when the fuel tax provisions in the Tax Reform for Acceleration and Inclusion (TRAIN) Act would resume upon automatic review of the initial three-month suspension.

“What the law says is when we can suspend. The law is less clear on when we can resume,” Chua told the Senate economic affairs panel chaired by Sen. Sherwin Gatchalian.

“The economic managers are currently discussing the mechanisms for resumption [of the tax hikes],” he said, prompting Gatchalian to ask whether the suspension “may not cover the entire 2019.”

Chua replied in the affirmative.

“So we are looking at three months suspension at the very least?” Gatchalian said.

“Yes,” Chua said. “At the very least [three months] and we will base that on prevailing oil prices.”

P2 per liter

The economic managers have recommended to President Duterte the suspension of the P2 increase in the excise on fuel scheduled for Jan. 1, 2019, due to soaring inflation.

Under the TRAIN law, an excise of P2.50 per liter was imposed on diesel and bunker fuel starting 2018. This would go up to P4.50 in 2019 and P6 in 2020.

Excise on gasoline increased from P4.35 per liter to P7 this year, and then to P9 in 2019 and P10 in 2020.

The TRAIN law states that the scheduled increases “shall be suspended when the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) for three months prior to the scheduled increase of the month reaches or exceeds $80 per barrel.”

In case the scheduled increase will be suspended due to elevated global prices, it nonetheless “shall not result in any reduction of the excise tax being imposed at the time of the suspension,” the law adds.

But Chua echoed his superiors’ position that no legislation was necessary even if crude oil prices did not reach $80 per barrel for three consecutive months.

Gatchalian agreed with the assessment when he spoke to reporters but said later that congressional action might be required after all.

He said Section 43 of the TRAIN law on the automatic suspension of the fuel tax “will not apply because the proposed suspension is not based on the breach of the $80 MOPS threshold as provided in the law.

“Therefore, the executive branch will not be able to unilaterally suspend the fuel tax without congressional approval,” he said.

Cut in jeepney subsidy

Jeepney franchise holders will receive a cut in their Pantawid Pasada subsidy next year when the increase in excise on fuel is suspended, according to Assistant Finance Secretary Tony Lambino.

But the amount they would get would still be double what they received in 2018.

This year, the franchise holders get P5,000 from the government to subsidize their fuel purchases as a result of the excise taxes on petroleum.

The subsidy was supposed to be increased to P20,000 in 2019.

But since the President was set to suspend the increase in the excise on fuel to rein in inflation, Lambino said the 2019 subsidy would be halved to P10,000 when the suspension took effect for the full year.

He said the fuel subsidy was supposed to offset the increase in the excise on fuel, which was why it would go down if the increase would be suspended.

Only 40 percent of the Pantawid Pasada Fuel Cards have been given out so far. Some 179,000 jeepney franchise holders are expected to benefit from the program.