Fuel marking to plug P27-B annual losses from oil smuggling, says DOF exec

Date Posted : May 28, 2017

Fuel marking to plug P27-B annual losses from oil smuggling, says DOF exec

Date Posted : May 28, 2017

The mandatory fuel marking system under the proposed Comprehensive Tax Reform Program (CTRP) is designed to curb the smuggling and misdeclaration of petroleum products that is costing the government an estimated P26.9 billion to P43.8 billion in foregone revenues each year, according to Department of Finance (DOF) Undersecretary Karl Kendrick Chua.

Under Package One of the CTRP, which the DOF has endorsed for congressional approval, this fuel marking plan will be implemented beginning next year by the Bureau of Customs (BOC), with the assistance of the Bureau of Internal Revenue (BIR).

The procurement process, which the BOC plans to start in the coming months, will be done through competitive bidding, Chua said at the 5th General Executive Council meeting of the Union of Local Authorities of the Philippines (ULAP).

In the meeting, Chua also explained the positive impact on the economy of the CTRP’s first package, also known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), and its benefits to local government units, especially those situated in the countryside.

The DOF expects the award of the contract by the third quarter so that the successful bidder would have enough time to roll out the system by ‪Jan. 1, 2018, Chua said.

Implementing a fuel marking system is among the provisions under the substitute bill HB No. 5636 approved last May 3 by the House ways and means committee covering the first package of the CTRP.

The bill, sponsored by Quirino Rep. Dakila Carlo Qua on second reading, is now undergoing plenary deliberations at the House of Representatives.

“The project cost for a five year implementation is expected to be fully recoverable as early as the first year of implementation as the unit cost of fuel marking is low, as low as 9 centavos per liter based on past pilots,” Chua said.

The DOF estimates revenue losses (VAT and excise taxes) from smuggled or misdeclared fuel at P26.87 billion (approximately USD 565.68 million) in 2016 alone.

However, the Asian Development Bank pegs it at a higher figure of P37.5 billion in losses annually while a study commissioned by the local oil industry estimates foregone revenues at P43.8 billion per year, Chua said.

Meanwhile, the Institute for Development and Econometric Analysis (IDEA) estimates that “smuggled gasoline accounts for an average of 23 percent of gasoline consumption from 2000 to 2006,” while “smuggled diesel accounts for an average of 6 percent.”

Revenue collections from petroleum products amounted to P52.56 billion.

Of this amount, the BIR collected P13.22 billion in the form of excise taxes and ‪P2.11 billion in VAT. The BOC collected P10.92 billion in fuel excise taxes and P26.30 billion in VAT from fuel in 2016.

The fuel marking and monitoring system has been backed by various groups, citing it as a way to prevent oil smuggling and complement efforts at improving the collection of fuel excise taxes.

In one of the past hearings of the House ways and means committee chaired by Cua, officials of Dow Chemical, SICPA-Global Fluids International (SICPA-GFI), Authentix and United Color Manufacturing Inc. were one in saying that a fuel marking system is an “economic, commercial, health, safety and environmental” concern that should be institutionalized by the government to complement its proposal to adjust fuel excise tax rates as part of the CTRP.

Roberto Batongbakal, who represents Dow Chemical, told the ways and means panel that on top of helping curb smuggling, fuel marking will also ensure that oil products sold in the market are of high quality, safe, highly regulated and complies with the country’s environmental laws.

Gadi Gonen, the managing director of the Switzerland-based SICPA-GFI, said fuel marking is a must in thwarting oil smuggling, which terrorist and organized crime groups resort to in order to raise funds.

Ramon Lacdan, the local manager of the Pennsylvania-based United Color, and Joel Fischl, managing director for Asia of the Texas-based Authentix, both agreed with the SICPA and Dow Chemical representatives that fuel marking will help the government increase tax revenues from oil products and protect consumers as well.


-oOo-

Date Posted May 28, 2017

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