Balancing the Sheet: Fiscal adequacy in quandary on excise tax

With an international conflict thousands of miles away turn into an on-the-ground daily battle of survival, the Philippine Congress passed Republic Act No. 12316 aimed at providing responsive actions to the ongoing energy crisis. 

The law, signed on March 25, 2026, allows President Ferdinand Marcos to temporarily suspend or reduce the excise tax on petroleum products. It specifically amended Section 148 of the Tax Code.  

Pursuant to RA 12316, President Marcos signed Executive Order No. 144 on Thursday, April 16, 2026, ordering the suspension of excise tax on liquefied petroleum gas (LPG) and kerosene effective for three months.  

This was after the Department of Energy certified that the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) covering the last 30 days has reached USD93.71 per barrel. 

This suspension of excise taxes translates to a reduction of LPG prices by P3.37 per kilo or P37 per 11-kilogram tank, a seemingly small reprieve for consumers who have suffered from price hikes amounting upwards of P187 per tank between March and April 2026.  

For kerosene, the suspension of excise tax means about P5.60 reduction in price per litre.  

Kerosene and LPG are widely used in households and small businesses for cooking.  

A Quandary: Cutting costs for Juan or cutting budget for every-Juan 

Perhaps the most fundamental theory and basis of taxation, the lifeblood theory posits that taxes are the lifeblood of the government, without which, the government would be paralysed and unable to operate. Upon this principle, the collection of taxes must remain unhampered lest the government would be unable to perform its functions in delivering basic services to its people.  

Executive Order No.114, however, does not include diesel and gasoline, leaving the transport sector, and the economy at large, still grasping to stay afloat.  

As it is, fuel accounts not only for transportation cost affecting commuters and motorists’ day-to-day mobility. At a larger scale, fuel accounts for a huge chunk in the operational cost of businesses. Hence, as fuel prices increase, commodity prices also rise as they reach the market, affecting the ordinary Juan.  

Section 148 of the Tax Code imposes an excise tax of P6.00 per litre of diesel and P10.00 per litre of premium unleaded gasoline.  

For jeepneys with fuel capacity of 50 to 60 litres of diesel, suspending the excise tax on fuel means an upwards of P300 of savings in fuel cost. While small for others, the amount could mean a difference for a family living hand to mouth on a jeepney driver’s earning.  

A direct cut in the excise taxes imposed on diesel and gasoline, therefore, immediately trickles down to consumers, tempering daily cost of living.  

At the earlier stages of discussions about suspending the excise tax on petroleum products, the Department of Finance cautioned that such suspension would amount to P121.4 billion in losses of revenue collection for the government in a six-month period or if implemented from May to December 2026.  

Suspending the excise tax on diesel and gasoline would grant reprieve for direct consumers on the three-digit per litre prices of these fuel products at present. However, this may also translate to over P43 billion in losses for the government in three months, further constricting the country’s already tight fiscal position. 

According to the DOF, while the collections from Value Added Tax (VAT) will likely increase by around P14 billion due to the rising prices, it is far below the projected losses from cutting the excise taxes on fuel, leaving a whopping P30 billion deficits in internal revenue collection. 

In a sound tax system, attaining fiscal adequacy means that the revenue raised by the State is sufficient to meet government and public expenditures and other public needs.  

Hence, we are at a quandary: Is it fiscally sounds to meet the basic needs of households today by cutting excise taxes thereby reducing revenue for public expenditures, or should securing higher revenue collection to fund public needs at large take precedence?  

A closer look at RA 12316 

While RA 12316 allows the suspension of excise taxes, it is not a blanket license to forgo the imposition of excise tax on fuel products. 

Under the RA 12316, the President may only order the reduction or suspension of excise tax on fuel products upon the recommendation of the Development Budget Coordination Committee and in coordination with the Secretary of Energy. The law also requires that such recommendation would be based on factual grounds, to wit: (a) that the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) reaches or exceeds USD80 per barrel; (b) that such price point lasts for one month immediately preceding the issuance of the suspension or reduction order.  

Neither the cut on the excise tax, if any, nor the Congress’ permission for the President to do the same, is permanent. The President shall only have the power to suspend or reduce the excise tax on fuel products until December 31, 2028.  

Moreover, every order reducing or suspending the imposition of excise tax on fuel products is valid only for up to three months. Should there be multiple orders issued to suspend or reduce the excise tax on fuel products, the total period for such suspension or reduction should not exceed one year.  

Every suspension or reduction of excise tax on fuel anchors on factual grounds and regular reportorial requirements. When the threshold of average crude oil price falls below USD80 per barrel, the excise tax on fuel products automatically reverts to the indicated amounts in Section 148 of the Tax Code without a need for further legislation or order from the Executive department.  

Since Congress merely delegated the power to suspend or reduce the excise tax on fuel to the President, the law requires the President to submit a report to Congress within 15 days after the issuance of an order of suspension or reduction, and every month thereafter, on: 

(a) The factual basis for the suspension or reduction of the excise taxes;  

(b)The estimated foregone revenues, including affected social benefits;  

(c) Its expected impact on inflation and fuel prices, cost-benefit analysis, an assessment of possible market distortions, or unintended consequences arising from the suspension or reduction of excise tax; and 

(d) A recommendation on whether the suspension or reduction of excise taxes should remain, be modified, or lifted.  

The President is due to submit his first report following the suspension of excise taxes on LPG and kerosene on May 1.  

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RA 12316 allows the temporary suspension of excise taxes on petroleum products in view of an oil crisis that’s crippling the ordinary Filipinos, yet the excise taxes on diesel and gasoline stand under fear of a larger impact of unbalanced books to the people at large. 

Some may say this is the essence of democracy – choosing the benefit of the general welfare. But does general welfare always trump the survival of a sector in critical condition? 

But then the greater question is: “Would the removal of the excise tax even actually be felt in the fringes of society?”

Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

As published in BusinessWorld, dated 21 April 2026