CRUDE OIL TARIFFS SLASHED TO CUSHION IMPACT OF OIL PRICES
MANILA, MAY 16, 2006 (STAR) (AFP) By Paolo Romero - President Arroyo has slashed import tariffs on crude oil and refined products for six months to cushion the impact of record-high world market prices of crude oil on local gasoline prices and the country’s economy, Malacañang announced yesterday.
Tariff levels, currently at three percent, would be reduced to between two and zero percent "based on certain triggers indexed to oil prices in the world market," Mrs. Arroyo said in Executive Order No. 527, released by the Palace yesterday after being signed Friday.
She said that "soaring fuel prices to unprecedented levels, brought about by current international and geo-political tensions and tight gasoline supplies, warrant the modification in the rates of duty on crude petroleum oils and refined petroleum products to protect consumer welfare."
"The tariffs shall be automatically restored as international oil prices move down based on the same trigger prices," the EO said without giving any specific price levels.
EO 527 would be in effect over six months, subject to government review, it added.
"An automatic tariff mechanism, based on certain triggers indexed to international oil prices, would soften the impact of high and rising world prices on the economy and the consuming public without necessarily draining government revenues," the order said.
The "triggers" pertain to a certain level of oil prices where the upward and downward adjustments in tariffs could be made. The duties on oil would be reduced to two percent, and one percent or zero depending on a determined price level of crude oil in the world market.
Press Secretary Ignacio Bunye said the Tariff and Customs Code of 1978 allows the Chief Executive to increase, reduce or remove existing rates of import duty as well as to modify the form of tariffs.
EO 527 is a quick fix from the President while Congress is still hammering out long-term measures to address the oil price crisis.
The order aims to strike a balance between the need to help Filipinos, particularly low-income families, to cope with rising fuel prices and to maintain the government’s revenue needed for its economic recovery program, Bunye added.
Meanwhile, Mrs. Arroyo also removed import duties on capital equipment, spare parts and accessories required by new businesses as well as those with expansion plans. The tax incentive will be offered for five years.
"Importation of capital equipment is one of the major cost burdens of business enterprises in their start up operations," Mrs. Arroyo said in the order, also signed Friday.
"Allowing duty-free importation will make the Philippines more competitive in attracting industries in the face of an increasing competitive Asian market for foreign direct investments," she added.
EO 528 noted that there is a need to extend the duty-free treatment on enterprises registered with the Board of Investments and operating in economic zones and free ports.
The order, however, stipulates that a zero tariff can only be applied if the equipment is not manufactured domestically in sufficient quantity and of comparable quality and price.
A BOI-registered firm cannot dispose of the imported equipment without prior approval from the agency within five years of the date of importation.
Bunye could not estimate how much of the revenues would be foregone through the two presidential orders.
He said the move does not run counter to the administration’s efforts to reduce fiscal incentives to business and investments to generate more income for the government.
The Arroyo administration had earlier backed off from proposals to temporarily halt the 12-percent expanded value-added tax on oil products after foreign lenders reacted negatively, warning that Arroyo administration’s target to balance its national budget by 2008 could be undermined.
The government implemented a 12-percent expanded value-added tax in February, which is the centerpiece of Mrs. Arroyo’s fiscal reforms intended to bridge the budget deficit and forestall a looming fiscal crisis. The expanded tax is expected to yield at least P80 billion in fresh revenues annually.
EO 527 was issued following a proposal last month from Finance Secretary Margarito Teves and Energy Secretary Raphael Lotilla for the government to peg the tariff rate according to the world market price of crude oil.
The move, Teves said, would have the biggest impact of the administration’s efforts to shield local fuel prices from soaring world oil prices, and would at the same time ensure that government revenues are not affected by the possible tariff adjustments.
He explained that as prices of crude go up the tariffs would go down and vice versa. He said the tariff adjustments would be made in one-percent increments.
Teves explained that since the tariff is imposed as a percentage, the government’s revenue projections would not be significantly affected. He said the government loses P2.5 billion in revenues for every one-percent reduction in tariff.
Lotilla said pump prices of gasoline, diesel and kerosene could be reduced by as much as a peso per liter on the average if tariffs were reduced.
Teves said oil prices are based on the Dubai price and that of the West Texas Intermediate (WTI). The WTI, which is the gauge normally announced in the media, is usually higher by $6 to $7 than the Dubai oil price, which the Philippines follows.
Government economic managers also warned that growth and inflation projections for the country this year and in 2007 might have to be revised if world oil prices continue to reach record highs.
Socio-economic Planning Secretary Romulo Neri had said that for every $10 increase in world oil prices, the country’s gross domestic product (GDP) growth slows down by 0.2 percentage points. GDP is the total value of goods and services produced domestically.
Neri said the Development Budget Coordinating Council projected that inflation is expected to hover between 7.3 percent to 7.9 percent this year as long as its assumption holds that Dubai crude does not exceed $62 per barrel for 2006.
Other inflationary factors, he said, include electricity rate increases and pressure from wage increases.
On the impact of the country’s balance of payments, Neri said for every $5 increase on the price of crude oil per barrel, an additional $631 million is needed to finance oil imports.
Mrs. Arroyo had earlier called on the public to brace for belt-tightening measures as she warned of possible adverse impacts of rising world market prices of crude oil on the country’s economy.
Government economic managers believe, however, that the country could weather the latest oil price surge as the government has learned from its experience last year. — With AFP
FVR forecast of economic gains appreciated: Palace 05/15 5:32:31 PM
Malacañang said Monday former President Fidel V. Ramos’ fearless forecast that President Gloria Macapagal-Arroyo will serve her six-year term until 2010, and his recognition of the economic gains made by the country over the past five years, are appreciated.
In a statement this morning, Press Secretary Ignacio R. Bunye said the former president’s "strong backing of President Arroyo’s tough economic decisions as well as his showcasing the Philippine economy overseas have done a lot of good for our people."
The Philippine Star quoted the former Chief Executive as telling a Filipino-American audience in Washington over the weekend that President Arroyo will serve her six-year electoral mandate as long as the Philippine economy remains strong and competitive.
"The economy is the tipping point. For the moment she’s okay and she will last as long as the economy can take it," Ramos said.
The former president also said that while a handful of disgruntled military officers and men favor drastic action to change the government, they do not represent the large majority of the members of the Armed Forces of the Philippines (AFP) who remain loyal to the chain of command and the Constitution.
"We appreciate President Ramos for his fearless forecast and his recognition of the economic gains we have garnered over the last five years," Bunye said.
He pointed out that all the achievements the Philippines gained were the result of a "consensus of leaders at all levels, and the support of key sectors of our society and the international community."
"The people must be praised for inspiring government to push forward despite the brickbats and destabilization attempts thrown its way," Bunye added.
He said President Arroyo remains focused on improving the lives of the people, while she pursues her relentless efforts to forge national unity, peace and harmony.
Chief News Editor: Sol Jose Vanzi
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