GMA to sign EO reducing tariff on imported oil products to zero

ANGELES CITY, Pampanga, Philippines – President Arroyo is set to sign within the next few weeks an executive order reducing the tariff on the importation of crude oil from three percent to zero, a move expected to bring down the prices of all petroleum products in the country.

The reduction was approved by the National Economic and Development Authority (NEDA) board during its meeting held at the Angeles University Foundation campus in Pampanga yesterday.

NEDA Director General Augusto Santos said that the reduction in the tariff would result in free competition between the importers of refined products and crude oil and eventually lead to the reduced prices of all petroleum products.

“We are promoting economic competition and then second it is following the rule of law because the Oil Deregulation Law says there should be a uniform tariff for refined products as well as for raw materials,” Santos said.

He noted that there was pressure to bring down the tariff when all products sourced from the Association of South East Asian Nations (ASEAN) region were reduced to zero.

“So there was the clamor also to reduce to zero also oil, even not coming from ASEAN sources,” Santos said.

He said that the revenue loss resulting from the tariff reduction can be recovered through an increase in economic activities brought about by a more level playing field and competition.

“The intention is to take away the distortions, to promote free competition, rule of law and promote economic activity, lower the price of end product, etc.,” Santos said.

Aside from the tariff on crude oil, the NEDA board also approved the reduction of the import duty on hot-rolled coils and cold-rolled coils, which are used in the manufacture of GI sheets, from seven percent to zero.

Finance Secretary Margarito Teves noted that the rate would return to seven percent once Global Steel Philippines Inc. regains its commercial operation status.

The tariff for mixed alkylbenzynes and mixed alkylnephthalines, used for the manufacture of fishing nets and yarn, was also reduced from three to one percent.

Tariff for polyamide-6 (nylon chip) was reduced from 10 percent to one percent.

Two separate EOs will also be issued by the President containing the commitment of the Philippines to the tariff reduction schedule on rice and sugar under the ASEAN Free Trade Area agreement.

In the case of rice, the Philippines would maintain the tariff at 40 percent from 2010 to 2014, then bring this down to 35 percent by 2015.

For sugar, the tariff would be maintained at 38 percent from 2010 to 2011, down to 28 percent in 2012, 18 percent in 2013, 10 percent in 2014 and five percent by 2015.

The NEDA board also approved the request to transfer cochin/refined coconut oil from the Philippine’s sensitive track list to the normal track under the ASEAN-Korea free trade agreement, which would in effect give it preferential tariff status and bring down the rate from 10 percent to zero.

All-in-all, Teves said that the government would lose an estimated P3.4 billion to P4 billion in revenues from all these measures.

The bulk of the revenue loss total would be from the tariff reduction on crude oil imports, which Teves said would already be around P3 billion.

However, Finance Undersecretary Gil Beltran said this may be offset from an increase in value-added tax (VAT) collections which would come along with the increase in demand for oil products as prices go down because of the zero tariffs.

“It can be overcome by an increase in the VAT. We expect more demand when prices go down,” Beltran said.

However, he said it would take time to recover the P5 billion in revenue losses.

President Arroyo is expected to issue an Executive Order eliminating the four percent duties on oil products to correct tariff distortions arising from free trade agreements.

According to the agreements entered into by the Philippines with other countries, duties should be reduced simultaneous with the reduction to zero of duties under the Asean trade in goods agreement (ATIGA) beginning 2010 and the Asean-Korea FTA (AKFTA) and the Asean-China FTA in 2012.

With the lowered tariffs, domestic pump prices are expected to drop by 58-centavo to P1.84 per liter of diesel and 24 centavos to 48 centavos for unleaded gasoline. — With Iris Gonzales