TRAIN fuel taxes seen worsening oil shocks

A POLICY BRIEF by the Congressional Policy and Budget Research Department (CPBRD) said the Philippines’ fuel tax system has increased consumers’ exposure to global oil price shocks, while rigid fare-setting mechanisms keep transportation costs elevated even when world oil prices decline.

In a May study, the House of Representatives think tank said implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law fundamentally changed how international crude oil movements affect domestic prices.

The discussion paper, which analyzed data from January 2010 to February 2026, found that the post-TRAIN fuel tax structure amplified the transmission of global oil price shocks into the Philippine economy.

The study said higher global oil prices are now felt more quickly through pump prices, transportation fares and the broader cost of goods.

Contrary to traditional economic theory, the fixed excise tax structure under the TRAIN law did not weaken the impact of oil price shocks but instead strengthened their transmission to the domestic economy, according to the report.

“Among fuel products, pass-through is highest for kerosene (0.732) and diesel (0.683), followed by gasoline (0.445) and liquefied petroleum gas (0.374),” authors Rutcher M. Lacaza, Kenmore B. Espinoza and Novel V. Bangsal said.

The report also documented what economists describe as “rocket-and-feather” pricing, in which retail prices rise rapidly during oil price spikes but decline only slowly when global crude prices fall.

The CPBRD said transport fares in the Philippines show an “effective total absence of downward adjustment.”

When international oil prices rise, transport groups quickly seek fare increases to offset higher fuel costs. However, fare reductions are rarely implemented during periods of lower oil prices, leaving commuters with persistently elevated transport costs.

“The fare adjustment system is more responsive to cost increases than to cost declines,” the think tank said.

Econometric testing showed the gap between fare increases and decreases reached 23.25 times, indicating that elevated transport costs persist long after oil prices stabilize or fall.

The think tank warned the Land Transportation Franchising and Regulatory Board and lawmakers that older models might no longer be appropriate in designing fuel tax relief mechanisms under Republic Act No. 12316. 

The study said outdated formulas and trigger points could delay the activation of tax relief during sudden oil price spikes, further burdening consumers.

The CPBRD recommended a more systematic and rule-based fare adjustment mechanism linked to crude oil movements, alongside a more responsive fuel tax relief trigger system. — Pexcel John Bacon