Finance Secretary Carlos Dominguez III has directed Department of Finance (DOF) officials involved in the implementation of the fuel marking and monitoring system, which is due for implementation early next year, to bring newly appointed Bureau of Customs (BOC) chief Rey Leonardo Guerrero up to speed on this new program designed to check oil smuggling that is costing the government an estimated P 27 billion to P44 billion in annual revenue losses.
A masterplan has been submitted by the government’s newly chosen provider–the joint venture of Switzerland-based SICPA SA and SGS Philippines–to set the fuel marking program in motion, Finance Undersecretary Mark Dennis Joven said in his report to Dominguez.
Joven said during a recent DOF Executive Committee (Execom) meeting that SICPA SA and SGS Philippines need to submit this masterplan in 30 days counting from the signing of the fuel marking contract last Oct. 30.
To ensure that the fuel marking program would not be delayed, the BOC and the Bureau of Internal Revenue (BIR) have already drafted the implementing rules and regulations (IRR), and will match this with the masterplan drawn up by the chosen fuel marking provider, Joven said.
The BOC is the lead agency that will implement the fuel marking program, which is mandated under the Tax Reform for Acceleration and Inclusion Act (TRAIN).
“I expect that the commissioner is fully briefed on that,” Dominguez said during the Execom meeting, which was the first attended by Guerrero in his new job as Customs commissioner.
Finance Undersecretary Karl Kendrick Chua said at the Execom meeting that the masterplan will lay out the implementation schedule for the fuel marking program, which is targeted for “early next year.”
“We’re not yet precise on the date. But early next year is the target. They have a marker already that they have prepared,” Chua said.
As the fuel marking provider, SICPA SA and SGS Philippines are expected to provide a unique chemical marker capable of being embedded at a molecular level to petroleum products such as gasoline, diesel and kerosene.
Their contract also covers services and equipment necessary to administer and inject the marker to the fuel and the administration of confirmatory tests, both in the field and in laboratories.
The DOF has estimated revenue losses (value-added tax and excise taxes) from smuggled or misdeclared fuel at P26.87 billion (approximately $565.68 million) in 2016 alone.
However, the Asian Development Bank (ADB) has pegged it at a higher figure of P37.5 billion in losses annually while a study commissioned by the local oil industry estimated foregone revenues at a much higher P43.8 billion per year.
The Institute for Development and Econometric Analysis (IDEA) estimated 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.”
Dr. Ian Ralby, a nonresident senior fellow with the Atlantic Council’s Global Energy Center, has said during a congressional hearing when the fuel marking system was still being discussed, that oil smuggling not only leads to billions of pesos in lost revenues, but also could be the second largest source of funding for criminal operations, second only to narcotics trafficking.
Ralby said the Philippines’ fuel marking system could serve as an “instructive model” for other countries and encourage them to address the worsening problem of oil smuggling across the globe.
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