With an international conflict thousands of miles away turning into an on-the-ground daily battle of survival, Congress passed Republic Act (RA) No. 12316 aimed at providing relief in the face of the energy crisis.
The law, signed on March 25, 2026, allows President Ferdinand R. Marcos, Jr. to suspend or reduce the excise tax on petroleum products. It specifically amended Section 148 of the Tax Code.
Pursuant to RA 12316, Mr. Marcos signed Executive Order No. 144 on April 16, ordering the suspension of excise tax on liquefied petroleum gas (LPG) and kerosene effective for three months.
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 liter.
Kerosene and LPG are widely used in households and small businesses for cooking.
THE QUANDARY: PRICE RELIEF VS LOST BUDGET FUNDS
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 paralyzed and unable to operate. As such, the collection of taxes must remain unhampered lest the government be left unable to deliver basic services to the 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. On a larger scale, fuel accounts for a huge chunk of the operating cost of businesses. Hence, as fuel prices increase, commodity prices also rise as they reach the market.
Section 148 of the Tax Code imposes an excise tax of P6.00 per liter of diesel and P10.00 per liter of premium unleaded gasoline.
For jeepneys with fuel capacity of 50 to 60 liters 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 make a difference for a family living hand to mouth on a jeepney driver’s earnings.
A direct cut in the excise taxes imposed on diesel and gasoline, therefore, immediately trickles down to consumers, tempering the 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 government revenue over a six-month period, or if implemented between May and December.
Suspending the excise tax on diesel and gasoline would grant a reprieve for direct consumers of these fuel products. Against this, we must weigh the over P43 billion in revenue forgone over 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 rising prices, it is far below the projected revenue forgone from cutting the excise tax on fuel, leaving a P30 billion shortfall.
In a sound tax system, achieving fiscal adequacy means that the revenue raised by the government is sufficient to meet expenditures and other needs.
Hence, we are at a quandary: Is it fiscally sound to help households meet their needs by cutting excise taxes, thereby reducing revenue for public expenditure, 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.
RA 12316 authorizes the President to order the reduction or suspension of excise tax on fuel products only upon the recommendation of the Development Budget Coordination Committee and in coordination with the Secretary of Energy. The law also requires that such recommendation be based on factual grounds, to wit: (a) that the average Dubai crude oil price reaches or exceeds $80 per barrel; (b) that such levels last for the one month immediately preceding the issuance of the suspension or reduction order.
Neither the suspension of the excise tax nor the authority for the President to do so is permanent. The President only has the power to suspend or reduce the excise tax on fuel products until Dec. 31.
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 reporting requirements. When the threshold of average crude oil price falls below $80 per barrel, the excise tax on fuel products automatically reverts to the indicated amounts in Section 148 of the Tax Code without 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 revenue, 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.
RA 12316 allows the suspension of excise taxes on petroleum products in view of an oil crisis that’s raising the cost of living, yet the excise taxes on diesel and gasoline remain, apparently out of concern about the larger impact of fiscal instability.
Here is where the authorities must make a decision on whether the general welfare should 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.
Rosalie O. Abatayo is an associate from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
