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The attacks on Saudi Arabia’s oil facilities on September 14 have cut the oil-rich kingdom’s production capacity to half and caused worldwide panic over anticipated skyrocketing prices of goods and commodities. The Philippines, being a heavy importer of oil, is more vulnerable to price increases than its Southeast Asian neighbors.
With the prospect of prices rising, one knee-jerk reaction would be to look into ways to mitigate the increase in fuel prices. These days, the topic that is gaining ground yet again is the possible suspension of the excise taxes on fuel.
Under Republic Act 10963, or the “Tax Reform for Acceleration and Inclusion Act” (Train), new excise taxes have been imposed on gasoline, diesel, liquefied petroleum gas, kerosene and bunker fuel, among others. Specifically, Revenue Regulations (RR) 2-2018, which implements the excise tax provision on fuel under Train, imposes on unleaded gasoline an excise tax of P7 per liter effective Jan. 1, 2018. This was later increased to P9 on Jan. 1, 2019 and will be raised to P10 on Jan. 1, 2020. The excise tax on diesel, on the other hand, is P2.50 in 2018 and P4.50 in 2019, and will be increased to P6 in 2020.
During the last quarter of 2018, a similar situation happened when lawmakers and various interest groups were clamoring for the scheduled P2 increase in excise taxes to take effect on Jan. 1, 2019. At that time, the possibility of a suspension was real, even if the world price for crude oil had fallen below $80 per barrel. However, the Duterte administration changed its mind, and allowed the scheduled P2 increase in excise taxes for 2019, which continues to take effect.
Now, with the bombing of Saudi Arabia’s oil facilities, we’re hearing the same rhetoric on the suspension of the excise taxes on fuel, even when the kingdom announced that production capabilities will normalize sooner than what was initially feared, hopefully by the end of September.
We see ourselves, yet again, trying to grapple with the idea of whether excise taxes on fuel may be suspended. Let’s revisit RR 2-2018, which also contains the suspension mechanism for these taxes. It says:
“Section. 5. Suspension of Scheduled Increase. For the period covering 2018 to 2020, the scheduled increase in the excise tax on fuel as imposed in this section shall be suspended when the average Dubai crude oil based on Mean Of Platts Singapore (MOPS) for three (3) months prior to the scheduled increase of the month reaches or exceeds eighty dollars (USD80) per barrel. A separate Revenue Regulation (RR) shall be issued for this purpose.”
With that in mind, is it possible to suspend the existing taxes? As an example, can we suspend the P7 tax imposed on unleaded gasoline in 2018? No. What about the P2 tax increase on it this year? Also no.
What may be suspended is the scheduled increase in excise tax, not the existing excise tax. If the price of Dubai crude oil reaches $80/barrel for three months prior to Jan. 1, 2020, the date of the next scheduled increase, the P1 tax increase on unleaded gasoline may be suspended.
It is apparent that the current suspension mechanism under Train has its limitations. The appropriate remedy for this is for Congress to amend the law. Otherwise, we apply the law as written.
Ron Arriesgado is a tax lawyer, transfer pricing specialist and partner at the LMA Law Offices in Makati City. He has managed and resolved taxation issues of local and multinational entities; resolved various tax assessment cases issued by the Bureau of Internal Revenue; and provided clients with the proper tax strategies to cancel or substantially lower tax assessments, among others.