ECONOMISTS are supporting the temporary suspension of fuel taxes to cushion the impact of rising oil prices, even as they warn of potential risks to government revenues and fiscal stability.
Economist Ronilo Balbieran, in an interview during Sunstar Cebu’s Beyond the Headlines program, said reducing or suspending excise tax and value-added tax (VAT) on fuel could provide immediate relief to consumers and transport operators struggling with elevated costs.
“This is an extraordinary situation that requires short-term intervention,” he said, noting that lower fuel taxes could help ease inflationary pressures and support economic activity.
President Ferdinand R. Marcos Jr. has signed into law Republic Act No. 12316, granting him emergency powers to suspend or reduce fuel excise taxes if Dubai crude oil prices reach or exceed $80 per barrel for at least one month.
Under the measure, any suspension or reduction may be implemented for a maximum of three months at a time but not exceeding a total of one year. Fuel excise taxes will automatically revert to their original rates either one week after the one-month average price of Dubai crude falls below $80 per barrel—as certified by the Department of Energy—or after three months, whichever comes first.
Balancing relief and revenue
The proposal, however, comes with trade-offs.
Suspending fuel taxes would mean foregone government revenues, potentially widening the fiscal deficit and increasing the need for borrowing. This could, in turn, put pressure on interest rates and the country’s credit profile.
The Department of Finance warns the government could lose P210 billion in revenue if the fuel excise tax and VAT are suspended for the rest of the year.
“Reducing taxes provides relief, but it also reduces the government’s capacity to fund programs and services,” Balbieran said.
He warned that prolonged tax cuts could weaken fiscal discipline, particularly if not paired with clear timelines and targeted support measures.
Targeted support urged
To mitigate risks, analysts are pushing for a time-bound and targeted approach, combining temporary tax relief with direct assistance to the most affected sectors.
Transport groups, including jeepney drivers, bus operators, and trucking firms, are among those seen to benefit most from lower fuel costs, alongside low-income households facing higher prices for basic goods.
Cash transfers and fuel subsidies may also be needed to ensure immediate relief reaches vulnerable groups, especially as tax adjustments may take time to filter through pump prices.
Regional peers act
According to Balbieran, other Southeast Asian economies have already moved to soften the impact of rising fuel costs.
Countries such as Vietnam, Indonesia, and Thailand have implemented a mix of tax reductions, subsidies, and price controls to shield consumers and businesses.
He said these measures highlight the need for swift and coordinated policy responses, particularly as fuel costs ripple through supply chains and drive inflation.
Short-term fix, long-term challenge
While tax cuts can provide immediate relief, Balbieran stressed that they are not a long-term solution.
The broader challenge lies in reducing the economy’s vulnerability to fuel price shocks through structural reforms, including improved public transport, energy diversification, and more efficient logistics systems.
“Tax cuts can buy time,” Balbieran said. “But the long-term solution is to make the economy less dependent on volatile fuel prices.”
Weighing the trade-offs
As policymakers weigh their options, the debate underscores a familiar dilemma: delivering urgent relief without undermining fiscal sustainability.
“The decision ultimately comes down to balance,” Balbieran said. “Providing support now, while ensuring that fiscal stability is preserved over the long term.” / KOC
