DOE to study higher fuel excise tax proposal

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The Department of Energy (DOE) will conduct a study of the proposed additional excise tax to be imposed on gasoline and diesel because it will lead to an increase in pump prices, particularly since fuel will also be subjected to 12 percent value-added tax (VAT).

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In an earlier pronouncement, Budget and Management Secretary Benjamin Diokno said that raising excise tax on fuels, including diesel, is among the initiatives under the Duterte administration’s comprehensive tax reform plan.

If passed, diesel tax alone will generate about P60 billion in annual revenue for the government, he said.

For 2015, DOE data showed that the country’s consumption of gasoline was 5.22 billion liters, while diesel was 9.34 billion liters.

Petroleum products are currently taxed at variable rates, ranging up to P4.50 a liter or kilogram, while no such tax is imposed on diesel at all under the present system.

“There should be [at least]P4 excise tax on diesel,” Diokno said, referring to the lower priced fuel product. He also called attention to the significant drop in the price of petroleum on the international market.

The budget secretary downplayed any negative impact of a higher fuel tax on the economy as a whole. “We are used to $100 per barrel anyway,” he said, referring to the global peak price of oil, to which current prices are not seen returning anytime in the near future.

Even the Duterte’s chief economist, Finance Secretary Carlos Dominguez 3rd said that this
is now the right time for a tax increase with oil prices remaining low.

Indexing oil excise taxes is one of the measures under the proposed Comprehensive Tax Reform Program the previous Aquino administration forwarded to the Duterte administration.

To take advantage of the low oil price environment, the former administration said it is appealing to explore indexing oil excise taxes to inflation, whose rates have not been adjusted since 1997.

The previous administration said the government would raise P132-billion additional revenue if the current excise tax on fuels would be raised.

It said regular gasoline could be taxed at P10 per liter while diesel can be taxed at P6 per liter, while increasing rates by 4 percent every year moving forward. A subsidy would be provided if crude oil price reached more than $90 a barrel.

It further said a P10-per-liter proposed tax rate was derived by indexing the existing excise tax rate of gasoline (P4.35/liter) to cumulative inflation factor of 2.37 (1997-2014). The same formula was used for the proposed tax rate on diesel.

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