Dubai crude trigger price to suspend TRAIN oil taxes already reached, IBON observed

The government is already obliged to start considering suspension of its oil excise taxes as provided for under the Tax Reform for Acceleration and Inclusion (TRAIN) law, said research group IBON. The group said that oil prices have in effect already reached the trigger price for suspending excise taxes as provided in Republic Act 10963 or TRAIN if their peso values are taken into account.

Section 43 of the regressive TRAIN has a pseudo-safeguard where scheduled oil taxes shall be suspended when the average price of Dubai crude reaches US$80 per barrel for three (3) months. This provision however does not consider foreign exchange movements, IBON noted.

The group said that the US$80 per barrel figure mentioned is equivalent to Php4,032 per barrel if converted at the prevailing peso-dollar exchange rate of Php50.39 in December 2017 when TRAIN was signed into law.

The world price of Dubai crude is some US$75 per barrel as of September 2018. While this is still technically below the US$80 per barrel trigger price under the TRAIN law, IBON explained that the peso’s fall against the dollar to Php53.94 as of September means that Dubai crude is already priced at Php4,038.

This means that the peso price of Dubai crude today is already more than the peso price of US$80 per barrel at the prevailing exchange rate when TRAIN became law. It is more reasonable to consider the peso price of Dubai crude as the trigger price rather than its price in dollars, the group said.

IBON said that the supposed safeguard is however weak because its implementation is still subject to the Department of Finance’s (DOF) discretion. The DOF has been belligerent and extremely protective of its oil tax revenues in these past months.

Moreover, TRAIN if ever only suspends the upcoming round of additional oil taxes in January 2019 and keeps the taxes already imposed at the start of 2018. This means that the inflationary impact of the first round of TRAIN oil taxes will remain, said the group. Inflation is already at its highest in a decade.

IBON said that while the government should implement suspension of the oil taxes, the token safeguards of TRAIN point to how the more pro-poor option is to repeal TRAIN and replace it with a genuinely progressive tax scheme that relies more on higher direct taxes on the rich rather than consumption taxes burdening even the poorest Filipinos. ###




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