Among the changes introduced by Republic Act No. 10963, otherwise known as Tax Reform for Acceleration and Inclusion Act (“TRAIN”), is the increase of excise tax rate on petroleum products. This increase is the first excise tax on fuel adjustment since 1997. According to the Department of Finance (“DOF”), the non-indexation of fuel excise tax to inflation has eroded the revenues collected by P140 billion per year in 2016 prices.[1]

The increase took effect on 01 January 2018, and is scheduled to increase further on 01 January 2019 and 01 January 2020. However, as early as May of 2018, Senator Grace Poe has already called for the suspension of the fuel tax increase, as it has allegedly contributed to the jacked up prices of basic goods and services. On 10 May 2018, Senator Bam Aquino filed Senate Bill No. 1798 (“SB No. 1798”) which proposes to suspend excise taxes on fuel once the average inflation rate for a three (3) month period exceeds the annual inflation rate target set by Development Budget Coordination Committee and the Bangko Sentral ng Pilipinas.

The  TRAIN, however, already has a built-in mechanism to suspend fuel tax hike. Section 148 of the National Internal Revenue Code, as amended by TRAIN, mandates the suspension of excise tax hike when the average Dubai crude oil price based on Mean of Platts Singapore  for three (3) months prior to the scheduled increase of the month reaches or exceeds eighty dollars (USD 80) per barrel.

For this purpose, the DOF is mandated to perform an annual review of the implementation of the excise tax on fuel and shall, based on projections provided and recommendations of the Development Budget Coordination Committee, recommend the implementation or suspension of the excise tax on fuel.

The question now is whether the suspension of the fuel tax hike will restore the excise tax rate prior to TRAIN?

SB No. 1798 provides that the excise tax on fuel prior to the effectivity of TRAIN shall be enforced during the period of suspension and the rate of excise tax under TRAIN will only be reimposed in the event that the inflation rate falls below the annual inflation target for three (3) consecutive months. Simply put, SB No. 1798 allows not only suspension of the increase in excise tax but also reversion to the lesser excise tax imposed on fuel prior to the advent of TRAIN. However, as SB No. 1798 remains a bill, TRAIN shall still govern the imposition and suspension of excise tax on fuel.

Unfortunately, TRAIN provides that the excise tax suspension shall not result in any reduction of the excise tax being imposed at the time of the suspension. It only acts as a railway brake on the scheduled additional increase on fuel tax rate, but it will not return to the previous excise tax rate. Thus, unless SB No. 1798 becomes a law, or any other amendment to TRAIN is introduced to revert us to the pre-TRAIN excise tax rate, the built-in suspension mechanism of TRAIN will not bring us back to the old fuel prices.