Doing the right thing, at least for a while

The oil price-cap protection that the government is imposing through Executive Order 839, which requires oil firms to temporarily peg prices of their products at their October 15 levels, and until the declaration of a state of calamity in Luzon is lifted, may not offer as much protection as we think.

Caps are good for consumers, at least, that’s how we see it in the short term. Imposing a limit on how high the price of a product can go is always a good thing.

The volatile oil market though is going to make it difficult for dealers to offer their customers prices based on or lower than the cap unless international market prices fall significantly.

They probably would not. The October report of the Organization of Petroleum-Exporting Countries (Opec) said global demand for oil would start growing in 2010. Opec expects demand to come from China, the Middle East, India and Latin America.

It’s normal for us consumers to demand some form of insulation from price shocks, especially as the country is still in the initial stages of recovering from the devastation wrought by typhoons Ondoy and Pepeng.

But the possibility of further increases—an oil price surge by next year as economies worldwide begin to recover from the recession—would make EO 839 moot.

The question then would be whether oil price increases would require new levels of government intervention in the marketplace, or as some critics argue, whether there should be no government intervention at all.

Some legislators in Congress are already thinking of revising the oil deregulation law when Congress resumes session next month.

It’s a fool’s game to predict oil prices. According to the Department of Energy (DOE), Petron and Shell compute their prices based on the price of Dubai crude while Chevron/Caltex and other small players use the MOPS (Mean of Platts Singapore) as their benchmark.

Raul Concepcion, chairman of the Consumer and Oil Price Watch (COPW), said he didn’t think the price increases implemented by oil companies, pre-EO 839, were reasonable and fair.

Concepcion thinks oil companies and even the DOE have not been transparent in reflecting the true cost of petroleum products. He said the energy department and the oil companies must show their inventories and costs to prove their transparency.

Increases in world oil prices should not be reflected immediately. It should at least take 45 days, Concepcion said. He noted that Petron Corp. and Pilipinas Shell Petroleum Corp., which are both refiners, have inventories of at least 45 days.

Concepcion also said that the Mean of Platts Singapore (MOPS) as a benchmark even by the local refiners has yet to be explained by either the DOE or the concerned oil companies.

The deregulation of the downstream oil industry was enacted in order to ensure a truly competitive market that offers fair fuel prices to consumers.

Concepcion and the COPW believe a return to a regulated oil industry is the best solution in light of the frequent adjustments in local oil prices brought about by sudden spikes or drops in world oil prices.

Legislators—not just the militant party-list groups but including the likes of Mikey Arroyo and Speaker Prospero Nograles in the House, and Chiz Escudero in the Senate—also believe in re-regulation.

Is re-regulating the oil industry the answer to high oil prices? Will there be enough time in this Congress for it? These questions need to be answered soon in the halls of Congress.

Scrap stamp tax on OFW money transfers

The Trade Union Congress of the Philippines (TUCP) is pushing for the immediate abolition of the documentary stamp tax (DST) on the money sent home by overseas Filipino workers (OFWs) through the banking system.

This is one way for the government to help drive down burdensome remittance charges, and help the families here of our OFWs, particularly those struggling to rebuild their lives following the devastation caused by recent typhoons.

At present, under the Internal Revenue Code, money transfers from abroad and payable in the Philippines, including those wired home by OFWs, are subject to the DST at a rate of P0.30 for every P200 sent through banks.

This means that OFWs actually pay a tax of P34.85 for every $500, or P23,230 (at $1:P46.46) that they send home. This is on top of the usual foreign and local bank fees and the P0.50 to a dollar margin that domestic banks are allowed in converting foreign exchange into pesos.

The amount may not seem much, but if an OFW sent home $500 every month for 12 months, he or she will have paid P418.20 in stamp taxes alone.

The government collects some P1.2 billion in DST every year from the cash sent home by OFWs via banks. OFWs coursed through banks a total of $16.426 billion in remittances in 2008. From January to August this year, they have so far wired home via banks a total of $11.3 billion.

This question really is, whether the P1.2 billion is better kept in the government’s pocket, or in the pockets of the families here of our OFWs. We say abolish the stamp tax on the money transfers made by our OFWs, and let their families here keep the money for them to spend.

Congress recently passed a new law abolishing the P0.75 DST for every P200 par value of shares of stock sold through the Philippine Stock Exchange. This benefited investors engaged in the buying and selling of publicly traded shares of stock.

If Congress was able to permanently remove the DST on the secondary sale of shares of stock, then surely it can also get rid of the DST on the money sent home by our OFWs. –Ernesto F. Herrera, Manila Times