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Proposal to Reverse TRAIN Law Fuel Clause Eyed

The scheduled increase on fuel tax based on the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) Law is eyed to be countered as soon the proposal at the Senate is approved into law.

Senator Joel Villanueva filed Senate Bill (SB) 2014 to reverse the TRAIN LAw or Republic Act 10963, noting that the since the effects of the law came into play, the country experienced a historical high inflation rate. In contrast to the claims of the Department of Finance (DOF) that the fuel tax rise would have minimal effects on goods, Villanueva cited that the as of last September, the country experienced a monthly year-on-year inflation rate of 6.7 percent, which is the seventh consecutive month that breached the maximum target of four percent. “In the same month, monthly food inflation stood at a higher rate of 9.7 percent,” Villanueva added.

January this year, the TRAIN Law raised the excise taxes on fuel products effective January 2018. The law also provides for additional increases scheduled in 2019 and 2020. Under SB 2104, the excise tax will be reverted to the pre-TRAIN law rates and will seek to suspend the scheduled increases should the following three conditions be present for a period of three consecutive months within any period before January 1, 2021:

1) Inflation exceeds government target;
2) Average price of food increases beyond 7 percent; and
3) Crude oil price exceeds PHP4,080 per barrel.

According to Villanueva, the three conditions will act as a “circuit breaker” against the undue burden of higher taxes.

“It is unfortunate that our economic managers gave us data and parameters during the deliberations of the TRAIN Law which later turned out to be far from accurate. Our goal now is to fix the law to make it more sensitive to the most vulnerable. It is currently self-defeating if we are creating unnecessary burden to the very same people that we wish to help in the first place,” he said.

Villanueva explained that the three conditions take into account the economic situation faced by ordinary Filipinos on a daily basis. The inflation condition, Villanueva explained, intends to help slow down the aggravating effects of fuel tax if inflation exceeds government outlook. On the other hand, putting the food price movements clause will help minimize the impact of fuel taxes on the welfare of the Filipinos.

“Filipinos allot as much as 60 percent of their budget on food. We already have more than 8 million Filipinos who fail to meet their basic food requirements on a daily basis, and even more people would suffer with higher prices. If food prices become too high, my proposal is to temper production cost by lowering the fuel tax,” he explained.

The senator also noted that current condition in the TRAIN Law is insufficient because it is not sensitive to the exchange rate fluctuations, saying that the future increases in the current TRAIN Law will be suspended if the crude oil price in the world market exceeds USD 80 per barrel. The bill converts the trigger price to the local currency to take into account further peso depreciation in the future, which could compound the rising price of oil in the world market.

“If we find our country faced with rising inflation, higher food prices, and further peso depreciation, and yet we allow high oil taxes to prevail, then the government would only be serving itself and not the people,” Villanueva noted.

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