Study: Well off reap tax freeze gains

The strongest measure taken by the government thus far — the suspension of the excise tax on fuel — will have little effect in easing Filipinos’ suffering, assessments of the measure showed.

Suspending the fuel excise tax may bring a modicum of relief at the pump, but a new study by the University of the Philippines School of Economics (UPSE) says the policy disproportionately benefits higher-income households while offering limited gains to the poor.

President Ferdinand R. Marcos Jr. on Wednesday signed Republic Act 12316 granting the Executive emergency powers to temporarily suspend or reduce the excise tax on petroleum products in response to the surging global oil prices due to the Middle East conflict.

The measure, a consolidation of Senate Bill 1823 and House Bill 8220, will take effect after publication, a process that takes about half a month.

The law amends Section 148 of the National Internal Revenue Code of 1997, allowing the President, in coordination with the Department of Energy and upon recommendation of the Development Budget Coordination Committee, to adjust the excise tax when the average Dubai crude oil price based on Mean of Platts Singapore reaches or exceeds $80 per barrel consistently for a month.

In a policy note issued on 25 March 2026, UPSE economist Jan Carlo Punongbayan found that a blanket suspension of the fuel excise tax is “poorly targeted,” with the bulk of the financial benefits flowing to wealthier Filipinos who consume more fuel.

Using data from the 2023 Family Income and Expenditure Survey, the study found that the bottom 30 percent of households account for only 17 percent of forgone gasoline excise revenues and just 2.5 percent of diesel excise revenues.

The findings come as policymakers debate suspending the fuel excise tax under the Tax Reform for Acceleration and Inclusion (TRAIN) law amid the rising global oil prices, driven in part by disruptions in the Strait of Hormuz. A full suspension would lower pump prices by P6 to P10 per liter but would cost the government an estimated P136 billion in lost revenue for 2026.

Who benefits?

The study found that fuel consumption rises sharply with income, particularly of diesel, which is closely tied to ownership of vehicles such as SUVs and trucks, as well as generators.

On average, Filipino households spend about P6,487 annually on gasoline and P1,644 on diesel, accounting for roughly 3.15 percent of total household expenditure. However, these averages mask wide disparities: the richest households spend significantly more on both fuel types compared to poorer households.

Data presented in the study showed gasoline spending increases nearly fivefold from the poorest to the richest income decile, while diesel spending rises by as much as 97 times.

As a result, when excise taxes are suspended and pump prices fall, the largest peso savings go to households that consume the most fuel — typically those in higher income brackets.

The study also noted that gasoline spending, as a share of the household budget, remains relatively flat across income groups, while diesel spending becomes more significant among richer households.

“Suspending either tax would therefore not be a pro-poor measure in relative terms, and in absolute terms, it would be strongly regressive,” the paper stated.

While wealthier households benefit more directly from lower fuel prices, the study found that poorer households are more vulnerable to fuel price increases through indirect channels.

Using a 2022 input-output model, the study traced how fuel price hikes ripple through the economy, raising the cost of goods and services such as food, transportation and electricity.

A simulated 10-percent increase in fuel prices was found to push up household costs for food, public transport, and electricity — sectors that account for a larger share of spending among lower income households.

The indirect impact of fuel price increases was estimated at 0.070 percent of household budgets for the poorest decile, compared with 0.051 percent for the richest decile.

Despite acknowledging that fuel price shocks affect poorer households through essential goods, the study argues that suspending excise taxes is an inefficient means of delivering relief.

The policy, it said, addresses the problem indirectly while incurring massive fiscal costs and distributing benefits unevenly.

“A blanket fuel excise tax suspension is a blunt tool: it is expensive, weakly targeted, and delivers large benefits to households that are not the main intended beneficiaries,” the study said.

Retired University of the Philippines Professor Roland Simbulan, chairperson and fellow of the think tank Center for People Empowerment in Governance, shared the study’s sentiment, explaining that the tax suspension’s actual effect on pump prices will be minimal.

“The excise tax on diesel is only about P6 per liter. Even if this is completely suspended, the price of diesel will fall by only around P6 per liter,” Simbulan said.

Even with the suspension of the excise tax, fuel prices will remain significantly high and the burden of the oil price crisis will continue to fall on consumers.

Culprit: Deregulation law

“The main driver of rising fuel prices is the deregulated structure of the oil industry under the Oil Deregulation Law of 1998,” Simbulan pointed out.

Under the current system, oil companies are allowed to set prices freely based on movements in the global market.

This arrangement allows companies to quickly pass on price increases to consumers while protecting their profit margins.

“In this context, suspending the excise tax becomes a largely symbolic measure. It allows the government to show that it is taking action against rising oil prices, even if the actual impact on consumers is limited and temporary,” Simbulan held.

He said that if the government was truly serious about easing the burden on consumers, it should not limit the discussion to excise taxes.

“Why is the suspension of the value-added tax (VAT) on petroleum products not being seriously considered, when VAT represents a much larger portion of the tax component of fuel prices?” Simbulan asked.

At the same time, Simbulan stressed the need to reopen discussions on reviewing or repealing the Oil Deregulation Law of 1998 and conducting stronger investigations into the pricing practices of oil companies.