Excise tax pause: Consumers unburdened, but gov’t disadvantaged — economists

Economists are weighing in on the possible suspension of fuel excise taxes, saying it could provide relief to consumers but disadvantage the government financially.

Malacañang on Monday said President Ferdinand Marcos Jr. is set to meet with the Development Budget Coordination Committee on Tuesday to discuss recommendations on the potential suspension or reduction of excise taxes on petroleum products.

Significant implications

For REID senior economist Ronilo Balbieran fuel taxes are a crucial source of government revenue, and any suspension would have significant implications.

“Perhaps the government is taking a look at the substantial loss in potential revenue because of the possible removal or temporary removal,” Balbieran told DAILY TRIBUNE.

He noted that losing this revenue would force the government to look for alternative funding sources.

Not enough to compensate for the loss

“If the economy is already slowing down, there won’t be enough growth in taxable economic activities to compensate for this loss,” he added. “When this happens, the government may be forced to borrow more from our creditors, (which could put at) risk our overall credit rating, since our debt-to-GDP levels have not gone down to pre-pandemic levels.”

Balbieran also highlighted challenges in disbursing payments for 2026 budgeted programs, particularly infrastructure projects, which he said have experienced “huge underspending” since the second quarter of last year.

“They can temporarily suspend excise and VAT on diesel for one to two months, until the procurement and disbursement for infrastructure projects have significantly increased,” Balbieran suggested.

Luis Limlingan, managing director at Regina Capital Development Corp., echoed the sentiment, saying fiscal, legal, and policy considerations are likely influencing the decision on suspension.

Potential effects

Asked about the potential effects, Limlingan said it "depends."

“It will be a relief to consumers, but the government will lose taxes,” noting that a short-term suspension will have minimal impact on the economy while long-term effects are harder to determine.

Meanwhile, RCBC chief economist Michael Ricafort described it as a “delicate balancing act” between foregone government revenues and relief for the public. He added that targeted subsidies and other non-monetary measures could help ease inflationary pressures.

Short-term suspension

Balbieran expressed support for a short-term suspension of one to two months to immediately lower oil prices and benefit all consumers, regardless of income.

“Remember that the core reason for imposing [an] excise tax is to change behavior — in the case of diesel, to lessen consumption and [encourage a] shift to low-carbon fuels,” he said.

Senator Panfilo Ping Lacson earlier warned that suspending the VAT could cost the government more than P320 billion in revenue and potentially affect the country’s gross domestic product.

“In the medium to long term, we will be the ones affected, too,” the lawmaker said.