Excise tax, VAT suspension on petroleum products to 'tame' inflation; gov't faces P136-B revenue loss

Congress’ plan to suspend the excise tax on petroleum products amid the oil crisis caused by the Israel-United States war on Iran could slow inflation, but will cost the government P121.4 billion in revenue losses until year-end. The amount does not yet include potential revenue foregone from value-added tax (VAT), projected at P14.6 billion, bringing the total forecast shortfall to as high as P136 billion.

The figures were presented by the Department of Finance (DOF) on Wednesday during the first hearing of the Senate ways and means committee on bills granting President Marcos Jr. emergency powers to cut excise tax and VAT amid the ongoing tensions in the Middle East, where the Philippines sourced up 98 percent of its oil imports. The panel approved the measures in principle and is expected to be passed as urgent pursuant to Marcos’ directive.

Data from the DOF showed that revenue collections from excise tax and VAT from petroleum products were approximately P160 billion from 2021 to 2025.

Gasoline is the primary contributor, with an average of P71.2 billion annually, followed by diesel at P65.6 billion. Although in terms of the volume of consumption, diesel is higher than gas, according to DOF Undersecretary Karlo Adriano. 

Combined revenues from excise tax and VAT amount to roughly P276 billion a year on average. 

“If we suspend the excise taxes from May to December…it will be around P121.4 billion. And we would like to note that, given that excise is part of the VAT computation, there's also a VAT loss of around P14.6 billion. Hence, a total of around P136 billion,” Adriano told senators.

Controlled inflation?

While there are downsides, suspending excise tax and VAT on petroleum products could also “tame” inflation. 

According to Department of Economy, Planning, and Development Undersecretary Rosemarie Edillon, the inflation for March is poised to climb sharply, ranging from 4.5 to 5.1 percent from 2.1 percent in February, if the Dubai crude oil reaches $100 per barrel.

The inflation rate, however, could further spike to 6.3 to 7.5 percent if the Dubai spot price hits $140 per barrel.

However, Edillon said if pending proposals to suspend the excise tax were to be passed into law, it would temper the possible inflationary effects of the oil crisis, keeping the inflation between 3.6 and 4.2 percent under the first scenario, while between 5.4 and 6.6. percent under the second or the “worst-case” scenario.

“Under the severe scenario, the worst case scenario, the reduction in purchasing power is around P2.63 up to P3.70 for every P100 pesos. And again, suspension of the excise will give back 80 centavos worth,” she told the committee.

“So it will still not be a complete package of assistance. Meaning to say that we will still need the fuel subsidy program to really reduce the impact, which again, we will need to balance the issue of reduced revenues with the fact that we will still need to implement other measures, Mr. Chair,” Edillon added. 

Senators have since urged the Department of Transportation to reactivate the fuel subsidy for transport sector workers as a cushion against the oil price shock. 

Fuel subsidy not enough

However, transport groups lamented that subsidies alone are not enough to keep their operations, unless excise and VAT are removed ahead of an expected big-time oil price spike.

PISTON president Mody Floranda said that although there has been no excessive aggression yet, petroleum prices have continued to climb nonstop since 2023, affecting the income of transport workers. 

Since 2023, gasoline prices have surged to between P33.16 and P37.50 per liter. The latest jump on Tuesday was sharp, with gasoline at almost P7 per liter and diesel at P23, he added.

“So if we look at it, from 2023 up to now, the increase has reached almost P60.50 per liter. And if we consume, for example, 30 liters per day, that’s almost P1,815 of lost income,” Floranda lamented. 

According to Adriano, the projected revenue shortfall accounts for 0.45 percent of the country’s gross domestic product and will prevent the government from incurring a larger deficit, leaving several programs unfunded. 

Senator Win Gatchalian, head of the Senate finance committee, said the government cannot afford another loan to close the deficit gap. 

He encouraged agencies to “belt-tighten” or refrain from activities that incur higher expenses, such as the Lakbay-Aral, a government educational program that combines travel with learning.