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NfnC f* nesearch Journal

Benefits of Fuel Markittg.

I. INTRODUCTION

Govemments around the world adopt fuel marking scherne as a tax administration
measure to prevent fuel fraud and smuggling due to unequal tax rates imposed
on different
kinds of fuels. It is intended to monitor the correct payment of taxes and prevent revenue
(ADB),
loss arising from illicit transfer of fuel. According to the Asian Development Bank
all countries are susceptible to fuel fraud; but for developing economies in which every
dollar counts, fuel fraud can substantially reduce a government's total revenues. It also noted
that the Philippines' foregone revonue amounted to $750 million arurually due to fuel
1
smuggling, *ftl"f, adulterated fuel products in the supply chain'

This paper discusses the benefits of fuel marking, the Philippine experience on its
pilot testing of fuet marking program in the past and the estimated cost in case of any plan to
ievive the program. It likewise presents fuel marking schemes being adopted by selected
countries.

il. FUEL MARKING IN THE PIIILPPINES

Fuel marking is not new in the Philippines. As a tax administration measure, fuel
marking was first prescribed in the country by Bureau of Internal Revenue (BIR) Revenue
Regulation (RR) No. 8-20062 which aims to ensure that all fuel bioethanol intended for
exclusive use as blending component in the production of E-gasoline are actually utilized

* Prepared by Mark LesterL. Aure, Supervising Tax Specialist, reviewed and approved by Ms. Teresita L.
Solomon, Acting Deputy Director, Local Finance Branch, NTRC.

I Asian Development Bank 2015, Fuel-Marking Programs: Helping Governments Raise Revenue,
Cornbat Smuggling, and Improve the Environment, https://www.adb.org/sites/default/files/publication/1747731
governance-brief-24-fuel-marking-programs.pdf, accessed on 6 October 2016).

of the Raw
2 Entitled. "Prescribing the Implementing Guidelines on the Taxation and Monitoring
Materials Used and the Bioethanol-Blended Gasoline (E-Gasoline) Produced under the Fuel Bioethanol
Program of the Department of Energy (DOE)" (9 May 2006).

Benefits o.f Fuel Marking t9

NTRC Tax Research Journal Vol. XXVil.6 November-December 2016

pursuant to the Fuel Bioethanol Program of the DOE, and in order to preclude any diversion
thereof to any other purpose.

Section 17 of RR 8-2006 provides that a marker dye should be blended to all fuel
bioethanol. For imported fuel bioethanol, the marker dye may be blended either in the
country of the foreign supplier particularly identified or indicated in the importation
documents or within the customs premises prior to its release therefrom. For locally
purchased fuel bioethanol, the same should be blended at the authorized local
distillery/denaturing premises. The actual blending of the marker dye should be conducted
personally by an independent person/entity duly accredited by the BIR, in case of locally-
sourced fuel bioethanol; or by an independent person/entity duly accredited in the counky of
origin of the shipment, in case of imported fuel bioethanol.

The description of the marker dye is prescribed according to the specific requirements
as determined by the BIR. In this regard, the BIR and the Bureau of Customs (BOC) is
provided with the necessary tool kit in order to determine the authenticity of the marker dye
actually blended in the fuel bioethanol.

The said RR further states that the absence of the marker dye or the use of fraudulent
marker dye on the fuel bioethanol already used or still to be used as blending component is
considered prima facie evidence that the fuel bioethanol has been imported or locally
purchased without the prepayment of the excise tax.

In 2007, the Department of Finance (DOF) issued Department Order (DO) No. 23-
073 which was circulated by the BIR through Revenue Memorandum Circular (RMC) No.
56-074 mandated the marking of imported kerosene and fuel oils which are entered tax and
duty free to prevent the unauthorized diversion.

The said DO aims to prevent the entry to domestic market of tax-and duty free
imported kerosene and fuel oils. Hence, it adopted fuel marking technologies to curtail
smuggling activities.

The objectives of the DO are as follows:

a. To properly identify and track fuel oils entered into the Philippines without the
payment of duties and taxes, whether the same are legitimately entered free
and/or exempt from duties and taxes, or illegally entered into the Philippines;

b. To plug the leakage of the duties and taxes due on fuel oils initially entered into
the country without the payment of duties and taxes and which were evenfually

3Entitled, "Mandating the Marking of Imported Kerosene and Fuel Oils Which are Entered Tax and
Duty Free to Prevent the Unauthorized Diversion Thereof Into the Domestic Market and for Other Purposes"
(26 July 2006)

a Entitled, "Publishing the f'ull Text of Deparftnent

Order No. 23-07 Dated ltly 26,2007 Entitled
"Mandating the Marking of Imported Kerosene and Fuel Oils Which are Entered Tax and Duty Free to Prevent
the Unauthorized Diversion Thereof Into the Domestic Market and for Other Purposes" (10 August 2007)

20 Fuel
 NTRC Tax Research Journal Vol. XXVIII.6 November - December 2016

diverted to the domestic market or for other use which will subject the fuel oils to
duties and taxes; and

c. To provide the necessary tool and evidence required for the prosecution of parties
who do not pay the proper duties and taxes for fuel oils introduced into the
domestic market.

The mandatory marking covbrs the following:

a. All kerosene, including dual purpose kerosene (DPK), subject to zero-excise tax;
and

b. All diesel imported into the Philippines for which exemption from the payment of
duties and taxes is claimed

The DO provides that mandatory marking, is the responsibility of the, in the case of
kerosene subject to zero excise tax, person, the entity or taxpayer who owns or enters the fuel
or to whom the fuel oil is consigned, or whoever brings the same into the country, should
cause the marking of said exempt kerosene/fuel oil with the official marking agett, and bear
the cost of marking. tn the case of diesel oil, the person, entity or taxpayer who imports,
manufactures, andlor refines said diesel oil should cause the marking thereof with the ofEcial
marking agent and bear the cost of marking the same.

DOF DO No. 6-08s amended DO No. 23-07 by renaming it as "Mandating the

Marking of Imported Kerosene and Diesel Which are Entered Tax and Duty Free to Prevent
the Unauthoized Diversion Thereof into the Domestic Market". The DO replaced the term
"fuel oil" with "diesel" while retaining kerosene as petroleum products that shall be marked
with the official marking agent designated by the DOF. Also, the amended DO revised the
commencement date of the pilot implementation from on or before August L5, 2007 to
March 15, 2008 at the Subic Bay Free Port, Clark Special Economic Zone and, Port of
Batangas.

On the part of the BOC, Customs Memorandum Order (CMO) No. 16-20086 was
issued to properly identiflz and track kerosene and diesel which entered into the Philippines
without pa5rment of duties and taxes; plug the leakage of duties and taxes due on kerosene
and diesel initially entered without payment of duties and taxes and which are eventually
diverted to the domestic market or for other use which will subject to duties and taxes; and

5 Entitled, "Amending Department Order No. 23-07 Dared July 26, 2007, Entitled "Mandating the
Marking of Imported Kerosene and Fuel Oils Which are Entered Tax and Duty Free to Prevent the
Unauthorized Diversion Thereof into the Domestic Market and for Other Purposes" (15 February 2008).

6 Entitled, "Rules and Regulations Implementing

Department Order (D0) No. 23-07 dated,26 July
2007, as Amended by DO No. 6-08 dated 15 February 2008, entitled: "Mandating the Marking of knported
Kerosene and Diesel Which are Entered Tax and Duty Free to Prevent the Unauthorized Diversion Thereof into
the Domestic Market". (14 March 2008)

Benefirs of Fucl Marki, 2t

 NTRC Tax Research Journal Vol. XXV[.6 November-December 2016

provide necessary tools and evidence required for the prosecution of parties who do not pay
the proper duties and taxes for kerosene and diesel introduced into the domestic market.

In 2009, DOF DO No. 12-097 was issued to extend the pilot testing of the fuel
marking program in Subic, Clark and Batangas. The extension seeks to determine whether
the project would incur a significant increase in the cost or inconvenience to the major
players in the oil industry. It demonstrated that fuel marking can be undertaken with hardly
adverse effect on the industry supply chains8. Accordingly, the cost of marking was proven
to be very minimal as to affect the pump price of the marked diesel and kerosene. Due to the
exigency of service, the pilot implementation was further extended to December 31,2009
through the issuance of DOF DO No. 30-09.e

The marking progrilm of imported diesel that entered conditionally free from
payment of duties and taxes through Subic Freeport Zote and Clark Special Economic Zone
and on imported kerosene whether duty and tax paid or not was regularized through the
issuance of DoF Do No. 43-09.r0 The DO also directed the BOC to issue the corresponding
rules and regulations to effectively implement the regulation of the program in the ports
mentioned.

DOF DO No. 44-09rr was issued to further extend up to January 31, 2010 the
effectivity of DOF DO No. 23-2007 as amended by DOF DO No. 06-2008 pending the
issuance of the rules and regulations to effectively implement the regiaization of the fuel
marking program.

Accordingly, cMo No. 4-201012 was issued pursuant to DoF Do No. 44-og
amending CMO No. 16-08 which initially implement the Fuel Marking Program. CMO No.
4-2010 includes ports with importations of diesel and kerosene whether or not duty and tax
are paid in addition to the ports covered by CMO No. 16-2008.

7 Entitled, "Extension of the Pilot Implementation

of Department Order (DO) 23-2007 As Amended
by DO No. 06-2008, on the Marking of Imported Kerosene and Diesel" (27 Febroary 20i09).

8 GMA
News Online 2009, RP Extended Anti-Oil Smuggling Program that Involves Marking Fuel
Shipments, 9 March 2009, htto:/hvrvw.smanetwork.com/news/siory/151985/money/m-extendls-anti-oil-
smusgling-prosram-that-involves-marking-fuel-shioments, accessed on 12 J*ru*y 2Oi.-
e Entitled, "Extension of the Pilot Implementation of Department
Order (DO) 23-2007 As Amended
by Do No. 06-2008, on the Marking of Imported Kerosene and Diesel" (2g May 2009).

l0 Entitled, "Institutionalization or Regularization of

the Implementation of Department Order (DO)
No. 23-2001 As Amended by DO No. 06-2008 on the Marking of Imported Kerosene and Oiesel,; (2i
December 2009).

11Entitled, "Extension of the Pilot Implementation of Departrnent Order (DO) No. 23-2007 As
Amended by DO No. 06-2008 on the Marking of Imported Kerosene and Diesel" (21 Decemier 2009).

12 Entitled,"
Implementation of the Regulations of the Fuel Marking Program pursuant to Department
Order No. 43-09 dated December 21,2009" (29 Jawary 2010).
NTRC Tax Research Joumal Vol. XXVIL6 November - December 2016

The mandatory marking prescribed in the said CMO was implemented at Subic
Freeport and Clark Special Economic Zone for diesel and kerosene, and at the Port of
Batangas for imported kerosene. These ports are required to submit monthly the list of diesel
and kerosene shipments. Ports not yet included in the marking program but with diesel and
kerosene arrivals must also submit the same report monthly but the initial report should cover
the whole year of 2009.

In20lO, DOF DO No. 18-201013 as circularizedby BIR RMC No. 62-101a expanded
the coverage of fuel marking to include all kerosene and DPK shipments into the country
even if the corresponding duties and taxes thereon have been paid. The DOF DO aims to
prevent revenue leakages from non-pa5rment of excise tax on products resulting from
processing of kerosene including DPK and to ensure that no marked kerosene is utilized as
Jet A-1 or aviation fuel.

The DO also required all ports with kerosene importations, including those declared
as DPK, which have been marked pursuant to DO No. 23-07, as amended, to submit monthly
the list of diesel and kerosene shipments. It also directed the Program Implementation Office
(PIO) to ensure that the mandatory marking of kerosene including DPK is implemented by
the BOC in all ports nationwide and that the necessary technical, operational and
administrative structures are in place for the smooth implernentation thereof.

To ensure proper implementation of the mandatory marking of kerosene and diesel

prior to their release from all ports of entry, whether or not exempt from duty andlor tax,
CMO No. 29-201015 was issued as supplemental instruction to CMO No. 4-2010. Its
directives are as follows:

a. The Management Information Systems Technology Group (MISTG) shall forward

to the PIO copies of all Survey Reports (Load Port Survey Report and Discharge
Port Survey Report) and Summary Reports and ensure the presence of a fuel
marking team upon arrival of kerosene shipment at any Customs port;

b. Upon the receipt of the survey reports, the PIO shall immediately forward, via a
secured channel, copies of the arrival notification to the designated marking agent
who shall in turn make the proper coordination with the District/Port Coordinator
of the port of destination for the proper conduct of kerosene marking; and

c. Importers andlor their agents shall be responsible for insuring that the notifications
and the provision of documents and the required marking are undertaken prior to
the release of the kerosene shipments from the ports of entry. Any kerosene

13
Entitled, "Nationwide Coverage of the Mandatory Marking of Kerosene Pursuant to DOF DO No.
23-07" (25 June 2010)

ra Entitled, "Publishing
Full Text of DO No. 18-2010 dared June 25, 2OlO of the DOF on the
the
Nationwide Coverage of the Mandatory Marking of Kerosene" (15 July 2010).

15 Entitled, "supplemental Instmctions to CMO No. 4-2010

dated January 29,2OlO and Department
Order No. 18-2010 dated June 25, 2010 on the Nationwide Tmplementation of the Mandatory Marking of
Kerosene" (10 July 2010).

Benefits of Fuel Marking 23

NTRC Tax Research Journal Vol. XXV[I.6 November-December 2016

shipment released from Customs without the marking agent shall be deemed
imported contrary to law.

On September 9,20t4, however, DOF DO No. 066-201416 was issued suspending

DO No. 23-07, as amended by DO No. 06-08 in consideration of the cost to the oil industry.

III. ESTIMATED COST OF FUEL MARKING

Fuel marking can range from simple colored dye to unique covert marker and is
usually instituted to address a wide range of objectives. Considered as a unique in-product
marker, it cannot be removed, altered or copied.

Some of the well-known providers of fuel markers are: (a) SICPA PetromarkrMlT
(adopted in Mexico, Dominican Republic, Brazll, Romania, Albania, Bulgaria, Georgia,
Uganda and Tanzania); (b) Authentix Vigilanflr{t8 (adopted in Guyana); (c) AccutracerMle
(adopte-4 in UK and Ireland); and (d) Soci6t6 G6n6rale de Surveillance (SGS) (adopted in
Serbia)20.

In April 2016, then BOC Commissioner Lina planned to revive the fuel marking
scheme which would cost PhP0.05 to PhP0.07 per liter and estimated that fuel marking could
generate $300 million (PhP14.89 billion2l) in revenue. However, a recent inquiry reveals
that the cost is now approximately PhP0.07 to PhP0.09 per liter.

It is worthy to note that BIR data on the volume of rernovals (VOR) of all
based on
petroleum products, the total VOR for 2013, 2074 and 2015 were 11.65 billion, 12.12 billion
and 12.67 liters, respectively. It is also observed that more than half of the VOR of
petroleum products were not subject to excise tax.

t6 Entitled, "suspension of Department Order (DO) No. 23-07, As Amended, on the Mandatory
Marking of Kerosene and Diesel" (09 September 2014).

t7 SICPA, Petromarkru, http.llwww.sicpa.com/PetromarVo2Ofirclyo2Omarklngyo20ardo

2jtracrnsyo2jyo2Bo 2}video, (accessed on 7 October 20 I 6)

l8 Authentix, http://authentix.corn/industries/fuel-markins-programs-for-national-goverffnents/,
(accessed on 7 October 2016).

le Dow Industrial Solutions, Fuel Marker Demonstrates Success in United Kingdom and Ireland,
http://msdssearch.dow.com/PublishedliteratureDOWCOlul/dh:O959i090lb80380959ddc.pdflfilepath:ucon/pd
fs/noree/3 1 9-0 1 I 13.pdf&ftomPaee:GetDoc, (7 October 2016)

20 Swiss-Serbian Chamber of Commerce, SGS Fuel Integrity Program in Serbia,

http://www.sscc.rs/2014/08/ses-fuel-inteerit),-proeram-in-serbia,/, accessed on l0 January 2017.

21
US$l = PLIP49.622, Bangko Sentral ng Pilipinas Reference Exchange Rate Bulletin (16 January
2017)

24 BeneJits of Fuel Marking

NTRC Tax Research Journal Vol. XXVIII.6 November - December 2016

Table 1. VOLUME OF REMOVALS OF'PETROLEIIM PRODUCTS: CY 2013-2015

(In Million Liters)

PETROLEIIM PRODUCTS 2013 20t4 2015

TOTAL rL652-03 t2-124.s4 u,6L4.43

1. From Own Production 9,414.15 10, 294.75 11.65 s.66
a) Subiect to Excise Tax 3,312.24 3.616.81 4,429.89
a.1. Domestic Consumption r,945.49 2,193.07 2,193.07

a.2.Export 1,366.75 1,.423.74 2"236.82

b) I,{ot Subject to Excise Tax 6,101.91 6,677.94 7 ))5 77

b.I . Zero excise tax rate 6.204.83 6.806.22 7.913.44

b.2. Deliveries to Tax Exempt (102.92) (128.28\ (687.67\
2. From Tax Paid Stocks 2,237.88 1.829.79 1,018.37
Source: 2013,2014 and 2015 BIR Annual Reports

Based on the VOR of petroleum products from the BIR and the estimated cost of
PhP0.07-PhP0.09 per liter, the cost of implementing the fuel marking program on all
petroleum products will range from PhPS15.64 million to PhP1.14 billion.

Table 2. ESTIMATED COST OF FTIEL MARIilNG BASED ON 2013,2014 ANI)

2015 BIR DATA ON VOR OF PETROLEUM PRODUCTS
(Amounts in Million Pesos)

2013 2014 2015

Particulars
@ PhP0.07 @ PhP0.09 @ PhP0.07 @, PhP0.09 @ PhP0.07 @ PhP0.09
Subject to 231.86 298.10 253.18 325.51 310.09 398.69
Excise Tax
Not Subject 427.t3 s49.17 467.46 601.01 505.80 650.32
to Excise Tax
From Tax 156.6s 201.4\ 128.09 164.68 71.29 9t_6s
Paid Stocks
Total 815.64 1,048.69 848.72 1.09t.2t 887.18 1,140.66

On the other hand, petroleum products consumption by fuel type from DOE shows
total consumption of 16.55 billion liters arrd 17 .95 billion liters for 2013 and 2014.

Benefit.t of Fuel Morking 25

NTRC Tax Research Journal Vol. XXVil.6 November-December 2016

Table 3. PETROLETIM PRODUCTS CONSTIMPTION, BY F'UEL TYPE

CYs 2013-2014
(In Million Liters)

Product 2013 2014

Aviation Gasoline 5.41 6.2

Aviation turbo 1.910.23 1,975.1
Gasoline 4,t24.77 4.546.7
Kerosene 1s0.56 136.7
Diesel Fuel Oil/Gas Oil 7,870.67 8.369.7
Industrial Fuel Oil 1,983.37 2.124.7
Others 23s.46 459.5
Refinery fuel (RF) and losses 264.7t 329.3
TOTAL 16.545.2 17,947.9
Source: Department of Energy (DOE)

Using the DOE data on petroleum products consumption, by fuel type (Table 3), the
total estimated cost will range from PhP1.16 billion to PhP1.49 billion for 2013 and from
PhPl.26 billion to PhP1.62 billion for 2014.

Table 4. ESTIMATED COST OF FUEL MARIilNG BASED ON 2013 AI\D 2014 DOE DATA
ON PETROLEUM PRODUCTS CONSUMPTION BY FIIEL TYPE
(Amounts in Million Pesos)

2013 2014
Product
@PhPo.07 @PhP 0.09 @PhP 0.07 @PhP 0.09
Aviation Gasoline 0.38 0.49 0.43 0.56
Aviation turbo t33.72 17t.92 r38.26 177.76
Gasoline 288.73 37r.23 318.27 409.20
Kerosene 10.54 13.55 9.57 t2.31
Diesel Fuel Oil/Gas Oil 5s0.9s 708.36 58s.88 753.28
Industrial Fuel Oil 13 8.84 178.s0 148.73 191.22
Others 16.48 21 19 32.r6 4t.35
Refinery fuel(RF) and
losses 18.53 23.82 23.05 29.63
TOTAL 1,158.17 1,489.07 1,256.35 1,615.31

26 Benefits of Fuel Marking

NTRC Tax Research Journal Vol. XXV[.6 November - December 2016

IV. BENEFITS OF FUEL MARKING

In general, fuel marking adopted by various countries including the pilot testing in the
Philippines aims to prevent fuel fraud and smuggling. Specifically, the following are the
benefits to the government:22

a. Increase tax receipts and sales revenue from increased volumes of official fuel in
legal circulation;

b. Enhance control to improve tax compliance and reduce tax evasion;

Minimize losses from fuel fraud, hence, the corresponding uplift in fuel revenues
and tax receipts provide measurable returns on investment;

d. Ensure that government bodies and regulators are able to collect the appropriate
amount of revenue from excise taxes on fuel: and

e. Prevent the illegal import of no or low-tax products and the dumping of transit,
export or subsidized fuels.

In the case of the Philippines, on September 7,2009, the partnership between the
Philippine govemment and the fuel industry to obstruct smuggled fuel away from the legal
market bore fruit, with the forfeiture of 954.5 liters of imported diesel fuel diverted outside
the Port of Clark.23 In this case, the diesel fuel was imported tax and duty-free on condition
that it will be sold only within Clark Special Economic Zone. However, the BOC operatives
found, through its sampling exercises, that the marked diesel fuel was being held for sale by
a certain gas station in Pampanga which failed to show evidence that it paid the
corresponding taxes and duties to possess such fuel.

In a similar case, the BOC filed charges against the owner of another gas station in
Zartbales for selling 14,000 liters of biodiesel fuel smuggled from the Subic Bay Freeport
Zone (SBFZ).2a The case prompted from the seizure proceedings involving tax-free fuel
intended for Freeport zones only but was brought out of the SBFZ without the necessary
payment of taxes and duties. The smuggled fuel was later found in the possession of the said
gas station which propelled the Presidential Anti-Smuggling Group's Task Force to
determine if the fuel being sold has been marked to distingursh whether a particular batch of

22SGs,FuelFraudPreventionThroughthesGsFuellntegntyProgram, file:/llC:Nsers/mark.aure/
Downloads/Scs%20occYo20Ew7oh20lntegity%o20USo/o20webYo20LR%20ll.pdf (accessed on 76 October
2016).

23 "Bureau of Customs seizes diesel

fuel sold outside Clark". Philippine Star. Septemb er 7 ,2009.
http:/iwww.philstar.com/business/502578ibureau-customs-seizures-diesel-fuel-sold-outside-c1ark. (Accessed 10
Jarnary 2017).

24 " Gas .gtation caught with 'marked'

.f"n|". Philippine Daily lnquirer. July 2l, 2}ll .
http://newsinfo.inquirer.net/2687915as-station-caught-with-"/oE2Yo80%98marked%E2%80%99-fuel (Accessed
10 January 2017).

Bene/its of Fual Marking 27

NTRC Tax Research Journal Vol. XXV[.6 November-December 20 16

fuel is duty- and tax-exempt or not. The positive test result on the fuel bought in the said
gas station confirmed that the fuel marker was present. It proved that the fuel's withdrawal
from the SBFZ did not go through the legal process and did not pay the corresponding
duties and taxes.

The illegal diversion of tax-free fuel oils from the Freeport Zones to domestic market
is one of the modus operandi of fuel smugglers. The above cases show that a robust fuel-
marking program can provide the government with a comprehensive approach that analyzes
each stage of the supply chain, beginning with the country's refineries or fuel depots, and
extending to the eventual sale of fuel products at the retail level. The ultimate effectiveness
of a fuel marking program is realized when it mitigates fuel fraud, resulting in the return of
stolen revenues to state coffers.2s

In a recent studf6, the ADB stated that fuel fraud, on top of robbing nations of much
needed fiscal revenue, "perpetuates extensive secondary effects such as harmful auto
emissions, increased fuel consumption, disrupted supply chains, and loss of confidence in
national governance systems. While fuel-marking systems have been in use since the 1950s,
recent developments in marker technologies, coupled with advances in analytical capacity,
now provide the technical foundation for extremely accurate and effective fuel-marking
programs".

These programs help governments to raise revenue, combat smuggling and improve
the environment. The fuel marking and monitoring system ensures the authentication of the
original legal fuel supply from authorized sites to the end user. By applying efficient fuel
marking and monitoring, the govemment can both increase revenue from fuel taxes and
veri$z that original legal high-quality fuels are distributed.

IY. EFFECTIYENESS OF FUEL MARKING IN SELECTED COTJNTRIES

The effectiveness of fuel marking system can be inferred from the experiences of
different governments that are using it. As gathered, the governments that adopted the fuel
marking system have substantial gains in terms of revenue by curbing fuel adulteration and
smuggling.

25
SGS, Fuel Fraud Prevention Through the SGS Fuel Integrity Program, file:///C:Ajsers/mark.aure
lDov"nloadslSGS'/o20OGC%o20Fuelo/o20lntegiYYo20lJSYo20web%o20LR%o2Oll.pdf, (accessed on 76 October
2016).

26
Asian Development Bank. The Governance Brief. "Fuel-Marking Programs: Helping Governments
Raise Revenue, Combat Smuggling, and Improve the Environment" Issue 24. 2075. - See more at:
http://oecdobserver.org/news/fullstory.ohoiaidl5376lFuel:fraudJemetuates_firrther:harmful:auto emissions
and:increased fuetconsurnption.html#sthash.lVi4Y2Gl.dpuf (Accessed 7 October 2016).

28 ts of Fuel Marbing
 NTRC Tax Research Journal Vol. XXVIII.6 November - December 2016

A. Tanzania2T

Tara,aria imports 100% of its petroleum products through Bulk Procurement

System (BPS). It adopted a fuel marking program in 2010 to combat fuel adulteration
which results in, among others, the loss of govemment revenues. The cost of fuel marking
is at $5.78/CM (PhP286.82lcMorPhP0.29lliter) which is reflected in local prices.

The adoption of fuel marking has the following advantages: (a) to curb fuel
adulteration; (b) to arrest dumping of transit petroleum products into the local market;
(c) to control and monitor the sales of untaxed petroleum products along with taxed
petroleum products; and (d) to promote fair competition among petroleum operators.

The use of fuel marking decreased fuel adulteration from 78%o in2OO7 to below
5o/oin 2015. It also increased govemment revenue due to significant increase in the
volume of petrol and diesel designated for local market. Moreover, it promoted fair
competition among petroleum operators. Hence, the use of fuel marking has good
results.

B. Ghunazs

Ghana adopted a fuel marking program after it implemented a fair market

pricing mechanism for domestic fuel products. In order to effectively monitor the
quality deterioration of petroleum products due to adulteration, and to assure the
appropriate recovery of tax revenues from the sale of these products, it initiated a fuel-
marking program known as the Petroleum Product Marking Scheme. Approaching the
program as a "national tax stamp" for higher-priced, taxed fuels, a multilayered marker
system was deployed. Markers are injected into both hightax diesel as well as lower-
grade gasoline.

Thirty-two percent (32%) of the 1,000 stations sampled score violations as

regards the authenticity of the petroleum. According to the CEO of Ghana's National
Petroleum Authority, such violations resulted into revenue loss in excess of GHl50
million (PhP582.50 million2e) through diversion of subsidized petroleum products.3o

27
Energy and water Utilities Regulatory Authority (EWURA) 2015, Monitoring and Enforcement of
Petroleum Products Quality Standards, Presentation at the Workshop on Awareness on Cleaner standards
Initiatives, 21 October 2015, Dar Es Salaam, Tanzsnil, http://www.unep.ore/Transport/neWpCFV/pdfl
2015 DART Monitorinejnforcement.pdf, (accessed on 18 November 2016).

28 Asian Development Bank 2015, Fuel-Marking Programs: Helping Governments Raise Revenue,
Combat Smuggling, and Improve the Environment, https://www.adb.org/sites/default/files/publicatioj
174773leovernance-brief-24-fuel-markins-programs.pdf (accessed on 6 October 2016).

2e GHll phpl l.65 for 16 Jaruary 2016, The Money Converter,

http ://themonelzconverter. com/GHS/PHP. aspx, accessed on I 6 J aruary 20 7 6.

30 C. Larbi, 2014. https:/irwvw.modernghana.corn/news/528618/1/npa-introduoes-fuel-marking-

scheme-to-check-adulte.html

BeneJir.s of Fuel 29
NTRC Tax Research Journal Vol. XXVI[.6 November-December 2016

Early sample results also indicated that mere awareness of the Ghana Petroleum
Product Marking Sctreme served as an effective deterrent against fuel fraud. Its use of
an aggressive public awareness campaign and the enrollment of the major oil
companies helped reduce the percentage of retail sites with significant fuel product
dilution from 34o/o to 7o/o in the first 6 months of the program. This translated into
significantly increased tax revenues and more than l00o/o return on investment.

C. Serbia3r

According to the Serbian Government, an annual loss of €40 million (PhP2.10

billion32) was caused by fuel adulteration while industry experts estimated the actual loss
to be as high as €100 million (PhP5.26 billion). Recognizing the evidence of illicit fuel
trade in Serbia and its impact on revenues, a Decree issued in 2013 by the Ministry of
Energy Development and Environmental Protection that requires the marking of all road
fuel with advanced chemical markers prior to being released to the market for
consumption. The Decree was issued after it observed the declining taxable sale of fuels
used in cars despite the growing number of fuel stations and the vehicle registrations.33

Under the said Decree, oil companies are mandated to procure and pay for the
marking services from government-designated providers. Retail outlets were to be
sampled, and those found with unmarked fuel or evidence of diluted fuel would be
subject to fines of RSD1.5 million-RSD3 million (PhP645 thousand to PhP1.29
million3a) and would be prohibited from doing business from 6 months to 3 years.

The oil companies welcomed the introduction of the marking system, after
seeing that sales volume increased by 18% for diesel and I4%o for gasoline-during a
time when the government expected sales to decline due to poor economic growth and
catastrophic flooding throughout most of Serbia. Based on its excise tax collections
from when the program started, the government expects a €60 million (PhP316 billion)
increase in excise tax collection as a result of fuel-marking. In surlmary, the Serbian
program provided annual return on investment of 6-7 times.

D. Guyana3s

Guyana was facing a myriad of fuel-related tax losses. Non-taxed fuel was
being smuggled into Guyana atd sold illegally to retail sites with no means of

3L lbtd,p.5.
32 €1:PhP52.614, Bangko Sentral ng Pilipinas
reference Exchange Rate Bulletin (16lannry 2017)
33 tbid.
34 RSDI : PhP0.43 for 16 January 2016, The Money Converter, httrr://themonelzconverter.com/
CHS/PHP.aspx. accessed on l6 January 20 16.
3s
BusinessWire, Authentix Fuel Marking Program Continues to Help Guyana Reduce Fuel Crimes,
http://wrnrrv.businesswire.com/news/home/20120529005418/enlAuthentix-Fuel-Marking-Proeram-Continues-
Guyana-Reduce, (accessed on 7 October2016).

30 Fuel
NTRC Tax Research Journal Vol. XXV[.6 November - December 2016

identiflzing which fuels were legally imported and which were smuggled. Additionally,
taxed road fuels were being adulterated with low-tax kerosene. To combat these
problems, it implemented a fuel marking program that blended fuel marker into
legitimate fuel at secure terminals. Samples from retail stations are then tested for the
expected concentration of these markers. Any level of dilution is quickly determined
and proper enforcement procedures are then initiated by the Guyana Energy Agency
(GEA). The implementation of the fuel marking program has enabled authorities to
reduce the incidence of fuel smuggling in the country and recover revenues that would
have been lost through illegitimate sales and tax evasion.

In addition to improve and sustain sales of legitimate fuel and subsequent

collection of excise taxes, the GEA also highlighted assurance of fuel quality, more
direct employment, confidence in the industry, and in the ability of the
regulation/enforcement agencies to stamp out illegal activity. Cooperation from the
Guyana Police Force in the detention of suspects and the Guyana Defense Force Coast
Guard, Customs Anti-Narcotics Unit (CANU) and Guyana Revenue Authority (GRA)
in joint operations have proven invaluable in combating the illegal fuel trade.

The vigilance of the GEA combined with the effectiveness and continued use of
the Authentix fuel marking program ensures that the rate of fuel-related crimes will
continue to decrease. An intemal analysis by the GEA completed in 2009 estimated the
net benefits of the program to represent a 443o/o return on investment.

VI. CONCLUSION

The benefits of fuel marking cannot be overemphasized. It prevents fuel adulteration

and smuggling. The mere awareness of the mandatory fuel marking serves as an effective
deterrent against fuel fraud. It provides fair competition among oil operators and thus
assures them of reasonable return of investment. The oil industry players should therefore
welcome the revival of the fuel marking scheme in the country. On the part of the
government, fuel marking will reduce fuel smuggling and will thus help recover revenue that
would have been lost through illegitimate sales and tax evasion

Actual cases in Pampanga and Zartbales show that illegal diversion of tax-free fuel
oil from Freeport zones to domestic market could be prevented through a robust marking
program. Also, based on the experiences of other countries, their figures show that the
implementation of fuel marking enables their governments to raise more revenue by
preventing fuel smuggling and adulteration. Hence, fuel marking is a worthy undertaking.

Fuel 31
NTRC Tax Research Journal Vol. XXVIII.6 November - December 2016

REVENUE REGULATIONS (RRs)

No. of Date of Date of

Subject
Issuance Issue Effectivity
RR 7-2016 Rules and Regulations Implernenting the November After fifteen
Tax Incentives Available to Tourism 18,2016 (15) days
Enterprises Duly Registered with the following
Tourism lnfrastructure and Enterprise publication in
Zone Authority under Republic Act (RA) the Official
No. 9593 otherwise known as the Gazette or a
"Tourism Act of 2009" newspaper of
general
circulation,
whichever
comes first

RR 8-2016 Amends Certain Provisions of Revenue November

Regulations (RR) No. 1 - 2016 02,2016

RE: Amends some provisions of RR 1-

2016 specifically on: (1) acceptable tax
return submissions for participation of
government procurement; (2) filing and
processing of applications for tax
clearance for bidding purposes; and (3)
validation of tax clearance by the
procuring govemment agency

RR 9-2016 Amends Section 4 of Revenue September

Regulations (RR) No. 6-2014, Coverage 02,2016
of Taxpayers Required to File Returns
Through Electronic Bureau of Internal
Revenue Forms

RE: Amends some provisions of Section 4

of RR 6-2014 to properly implement
coverage of taxpayers mandated to file tax
retums through eBIRForms

RR 10-2016 Amends Section 10.C. of Revenue December Effective

Regulations No. 1 7-201 1 Implementing 27.2076 immediately
the Early Withdrawal Penalty of Republic
Act No. 9505, Otherwise Known as the
'Personal Equity and Retirement Account
(PERA) Act of 2008'

Issuances with Revenue Implications: November - December 2016 33

NTRC Tax Research Journal Vol. XXV[I.6 November - December 2016

Type of Date of
Subiect Date Signed
Issuance Effectivitv
IRR of Expands the Benefits and Privileges of December 1 Effective
Republic Act Persons with Disability 20t6 fifteen (15)
No. 10754 days after its
complete
publication in
at least two (2)
national
newspapers of
general
circulation and
submission to
the Office of
the National
Administrative
Register, Law
Center,
University of
the Philippines

REVENUE MEMORANDUM CIRCULAR (RMCs)

No. of Date of Date of

Subject
Issuance Issue Effectivity
RMC 107- Remittance of Withholding Taxes Thru November To be glven
2016 Tax Remittance Advice by National I0,2016 as wide a
Government Agencies publicity as
possible
RMC 109- Non-Suspension of All Audit and Other November November
2016 Field Operations of the Bureau of lnternal 7, 7,
Revenue During Christmas Season 2016 20t6

RE: Mandates a continued field audit and

field operations including all enforcement
activities during holiday season in line
with the thrust of the Bureau of Internal
Revenue to intensify taxpayer compliance
and increase rovenuo collection

RMC 110. Clarifies the Provisions to Revenue November To be given

2016 Memorandum Circular No. 1 08-201 6 19,2016 as wide a
publicity as
possible

34 Issuances with Revenue Implications: November - December 2016

 No. of Date of Date of
Subject
Issuance Issue Effectivify
RMC 111- Reiterates the Procedures Relative to November To be given
2016 Issuance of Subpoena Duces Tecum, and 18,2016 as wide a
Submission of Reports of Investigatronl publicity as
Verification on Tax Cases/Dockets to the possible
Reviewing Officer

RMC 122- Non-Suspension of All Audit and Other November November

2016 Field Operations of the Bureau of Internal 7,2016 7,2016
Revenue During Christmas Season

Re: Orders all fleld audit and other field

operations of the Bureau of lnternal
Revenue (BIR) pursuant to duly-issued
Letter of Authority (LOA), Tax
Verification Notice G\rN), Letter Notice
(LN), and any other form notices of
investigation, relative to examinations and
verifications of taxpayer's books of
accounts, records, and other
transactions to continue even during
Christmas season to intensitz taxpayer
compliance and increase revenue
collections

RMC 123- Accurate Submission of Reports of November

2016 Revenue District Offices (RDOs) ))
2016
RE: Amends the pertinent provisions of
RMC l-2012 forpurposes of identiS.ing
the appropriate office where the reports of
the Revenue District Office (RDOs) shall
be submitted regarding Authorized Agent
Banks' (AABs) level of compliance in the
collection of internal revenue taxes in the
light of the provisions of Revenue
Administrative Order (RAO) No. 2-2014

RMC 124. Cirqilaizes the Implementing Rules and December 1,

2016 Regulations of Republic Act No. 10693 2016
otherwise Known as the "Microfinance
NGOs Act"

RMC 126- Issuance of Certificate of Zonal Values of November November

2016 Real Properties 25,2016 25,2016

I Issuances with Revenue Implications: November - December 2016

I NTRC t* R.r.*"h:or-ul

No. of Date of Date of

Subject
Issuance Issue Effectivity

RE: Provides guidelines in the issuance of

Certifi catio n of Zonal Values of Real
Properties by the Revenue District Offices
(RDOs) to address a significant number of
taxpayers complaining on the
inconvenience of getting certification of
zonal values of real properties from the
National Office which is needed in the
computation of estate, donors and capital
gains taxes before the issuance of
electronic Certifi cate Authorizing
Registration (eCAR) and for any other
legal purpose

RMC 127. Lifts the Suspension of Effectivity of December 2, Immediately

2016 Certain Revenue Issuances Provided 20t6
Under Revenue Memorandum Circular
No. 69-2016 dated July 1,20T6

RMC 128- Amends Certain Provisions of Revenue November November

2016 Memorandum Order (RMO) No.22-20L6 22,2016 22,2076
Relative to the Submission of Mandatory
Documentary Requirements for
Reissuance of Electronic Certifi cate
Authorizing Registration (eCAR)

RMC 130- Clarifies the Tax Treatment and December 8, Immediately

2016 Appropriate Withholding Taxes on 20t6
Income Payments by Departments and
Agencies of the Government, Including
Government-Owned andl or - Controlled
Corporations and Government Financial
Institutions to lndividuals Engaged under
a Job Order or Contract of Service
Agreement

RMC 132- Limits the Availability of Mobile December

2016 Application on Non-Android Phones to 27,2016
Authenticate Internal Revenue Stamps on
Cigarettes under Revenue Memorandum
Circular (RMC) No. 51-2016

RMC I35- Circularizos the Full Tsxt of the December

2016 Implementing Rules and Regulations of 28,2016

I 36 Issuances wirh Revenue Implications: November - December 20161

NTRC Tax Research Journal Vol. XXV[.6 November - December 2016

No. of Date of Date of

Subject
Issuance Issue Effectivity
Republic Act No. 10754, Otherwise
Known as "An Act Expanding the
Benefits and Privileges of Persons with
Disability''

RMC 136- Over-the-Counter Acceptance of Tax December

2016 Returns/ Payments of Internal Revenue 28,2016
Taxes Due to Unavailability of eFPS

RMC 137- Clarifies Compliance on Business December

2016 Registration Requirements Pursuant to 29,2016
Revenue Memorandum Circular No. 93-
2016 and Amending Annexes AI, A2.1,
42.2, A4, A6 and A10

OTHERS

No. of Date of Date of

Subject
Issuance Issue Effectivity

DILG MC Policies and Guidelines on the November 3, To take effect

2016-160 Implementing Rules and Regulations of 2016 immediately
RA 10868, Otherwise Known as the
"Centenarians Act of 2016"

DILG MC Exempts Medical and Dental Clinics November To take effect

2016-170 from Mayor's Permit or Business Permit 28,2016 immediately
Requirement

BOC Certificate of Origin Verification November

Memorandum Website lnternational Chamber of 09,
Commerce (ICF) World Chambers 20t6
Federation (WCF) International
Certificate of Origin (CO) Accreditation
Chain

RE: Endorses the securod website for

online verification of COs issued by
accredited chambers listed who are
uploading their COs in the central
registration systern

Issuances with Reyenue Implications: November - December 2016 37

I NTRC Tax Research Journal Vol. XXV[I.6 November - December 2016 |

No. of Date of Date of

Subject
Issuance Issue Effectivity

Bureau of Guidelines for the Implementation of November November

Customs Customs Administrative Order (CAO) t4, t4,
(Boc) No.02-2016 2016 20t6
Customs
Memorandum RE: Provides the guidelines on various
Order (CMO) situations that may be encountered
No.28-2016 during the clearance formalities of
importations with De Minimis Value in
order to better illustrate the practical
application of CAO No. 02-2016; to
guide customs personnel and
stakeholders in the implementation of the
De Minimis Value; and to protect
govemment revenuo from possible
misapplication of the De Minimis Value

cMo 29-2016 Reiterates and Amends Customs November November

Memorandum Order (CMO) No. 28- 77, 17,
201s 20t6 2016

RE: Reiterates and amends CMO 28-

2015 on the mandatory filing of
consumption entry for sea shipment at
the port of discharge in cases where the
port of discharge is not the port of final
destination

cMo 30-2016 Guidelines in the Implementation of an November November

Advance Ruling System for Valuation 28,2016 28,2016
and Rules of Origin Pursuant to Customs
Administrative Order (CAO) 03 -2016

RE: Provides guidelines in establishing

an Advance Ruling system in the
Philippines regarding customs valuation
method, preferential and non-preferential
origin of goods; establishing the
parameters and procedures for Advance
Ruling requests; and providing for all
administrative matters with respect to the
issuance, denial, revocation,
modification, and publication of Advance
Rulings