DOF disputes Petron’s claim TRAIN Law led to profit spill

MANILA, Philippines — The Department of Finance (DOF) has debunked the claim of Petron Corp. that the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act led to the decline in its earnings in the first half.

In a statement, Finance Undersecretary and chief economist Gil Beltran said it was “highly unlikely” that the second round of fuel excise tax increase under the TRAIN Law resulted in lower sales and net income for the oil company. 

“We looked at their financials and it seems highly unlikely. It is misleading for Petron to blame TRAIN for their decrease in sales,” Beltran said.

Petron last Aug. 8 reported that its net income in the first half dropped by 72 percent to P2.6 billion compared to last year’s figures.

The company claimed that price increases due to the implementation of the TRAIN led to a decrease in its fuel sales. 

However, Beltran said the DOF looked at reports from other major players, including Pilipinas Shell Petroleum Corp. (Shell), and found that they did not exhibit the same performance. 

“Shell actually reported that despite lower profits in the first half of 2019 compared to the same period in 2018, they saw higher retail volume growth across all business segments in the second quarter, which is the opposite of the Petron story,” Beltran said. 

“In addition, Petron’s message that higher prices led to a decline in sales is inconsistent with their history,” he explained.

According to Beltran, Petron revenues back in the first quarter of 2012 increased by 17 percent or P10.6 billion compared to the previous year despite the peak of gasoline and diesel prices at that time.

He added that Petron’s income in the first half of 2012--when oil prices were the highest--grew by 43 percent.

“Perhaps Petron should look inward to understand the true cause,” Beltran said.

Furthermore, Beltran noted that Petron’s indirect expenses jumped by 78 percent in the first quarter, which suggests “lower efficiency resulting in the income decrease.”

“Blaming TRAIN for their income drop is unwarranted. Taking into account much higher indirect expenses, it appears the reason for Petron’s performance can be attributed to internal issues or perhaps weakening market share because they refuse to adjust their prices, and not higher excise tax. Remember, Shell is in the same business and their sales volumes actually grew,” he said.

Republic Act 10963 or the TRAIN Law increased the excise tax of fuel by P2.50 per liter effective Jan. 1, 2018 and by another P2 per liter in Jan. 1 this year. This will continue to rise by another P1.50 per liter by 2020.

Earlier, Petron Corp. president and chief executive officer Ramon Ang said the implementation of the law has resulted in more rampant oil smuggling in the Philippines.

However, Finance Secretary Carlos Dominguez said the increase in oil smuggling incidence was “anticipated,” which is why the law mandated the rollout of a fuel marking program.