By Sheldeen Joy Talavera, Reporter
RENEWED UPWARD PRESSURE on global oil prices has revived calls for the Philippine government to suspend excise taxes on petroleum products, although experts remain divided on whether such a move can be effective.
This comes as fuel retailers are expected to hike diesel prices by as much as P10.50 per liter and gasoline prices by as much as P4 per liter this week.
“At this point, I’d not immediately recommend suspending the fuel excise tax,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., told BusinessWorld.
“A greater approach is to concentrate on targeted interventions that ease the burden on vulnerable sectors while preserving much needed government revenues,” he added.
Mr. Ravelas said the federal government should as an alternative expand fuel subsidies for public transport, farmers, and fisherfolk; provide targeted money assistance to low-income households; and speed up energy conservation measures.
He said the federal government’s focus needs to be on reducing fuel and power consumption moderately than merely absorbing higher prices, as conservation stays “the quickest and only response to an oil price shock.”
“Excise tax suspension should remain a contingency measure if oil prices stay elevated for a chronic period and start to pose a big risk to inflation, economic growth, and consumer welfare,” he said. “Until then, targeted assistance and conservation measures offer a more sustainable solution.”
The country, a net importer of crude oil, has been under a year-long energy emergency since late March because the Middle East crisis threatens its fuel supply.
Under Republic Act No. 12316, the President has the authority to suspend or reduce excise taxes on petroleum products. A suspension of fuel excise tax collection has been estimated to lower pump prices by P6 per liter for diesel and P10 per liter for gasoline.
President Ferdinand R. Marcos, Jr. suspended the excise tax on liquefied petroleum gas (LPG) and kerosene for 3 months starting April 13. This reduced LPG prices by P3.36 per kilo and kerosene prices by P5.60 per liter.
The three-month suspension of excise tax on LPG and kerosene was lifted on July 8, after the common Dubai crude oil price dropped below the $80 per barrel threshold.
“While reinstated just a few couple of weeks ago, a possible suspension may again be obligatory to assist cushion the potential further increases on the said socially sensitive products,” Jetti Petroleum, Inc. President Leo P. Bellas told BusinessWorld.
Based on the five-day trading on the regional benchmark Mean of Platts Singapore, pump prices of diesel are projected to extend by P10 to P10.50 per liter this week while gasoline prices are seen rising by P3.50 to P4 per liter.
The projected increases could push each gasoline and diesel prices beyond P100 per liter, well-above the prewar price levels of around P50 to P60 per liter.
“The breakdown of the US-Iran truce and tanker attacks within the Strait of Hormuz revived concerns about shipments of products from the Middle East,” Mr. Bellas said.
“With the renewed risk of supply disruptions, gasoline prices strengthened as global stock balances remain tight, with inventories falling as demand stays firm,” he added.
Adding to the risks posed by the continued Middle East conflict, Iran has reportedly directed its Houthi allies in Yemen to shut the Red Sea export route should the US launch attacks on its power infrastructure, Mr. Bellas said.
While tensions within the Middle East have renewed upward pressure on oil prices, it remains to be too early to call for a suspension of excise taxes on fuel, in line with Top Line Business Development Corp. Senior Vice-President and Chief Operating Officer Brigitte Carmel C. Lim.
“Nevertheless, if the increases change into sustained and significantly impact consumers, temporarily suspending excise taxes could also be considered to assist ease the burden on motorists and households,” she said in a Viber message.
Noel M. Baga, co-convenor of the Center for Energy Research and Policy, said fuel price volatility isn’t the core issue.
“The Philippines stays vulnerable to sudden external supply shocks due to its heavy dependence on imported fuel, the absence of effective automatic price controls, and the shortage of a Strategic Petroleum Reserve,” Mr. Baga told BusinessWorld.
“Constructing those buffers is what protects consumers from the subsequent shock, not only this one,” he added.
The Philippine government is already laying down plans to construct the country’s strategic petroleum reserve program, which incorporates putting up recent stockpiling facilities.