Temporarily Suspending or Reducing the Imposition of Value-added Tax (VAT) on Petroleum Products

Difice of the Secretary TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES APR 15 A8:08 First Regular Session ) RECEIVED BY: dri SENATE S. No. — 2043 AN ACT TEMPORARILY SUSPENDING OR REDUCING THE IMPOSITION OF VALUE-ADDED TAX (VAT) ON PETROLEUM PRODUCTS, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES Introduced by Senator Loren Legarda EXPLANATORY NOTE The Philippines is once again in the grip of a fuel price crisis, and millions of Filipinos can no longer wait for government relief that arrives only after weeks of delay. Following the declaration of a national energy emergency on 24 March 2026 amid a global oil supply disruption, the country has faced sharp and sustained increases in fuel prices driven by geopolitical tensions and its heavy dependence on imported oil. With diesel prices now ranging roughly from P110 to as high as around P170 per liter in some areas and scenarios, every peso added by the 12% value-added tax (VAT) on petroleum products is a direct amplification of an already externally driven price shock, taken from commuters, public utility drivers, farmers, fisherfolk, small-scale entrepreneurs, and ordinary households already struggling to cope with rising prices. Inflation has breached the government's 2% to 4% target range, rising to 4.1% in March 2026, driven in large part by surging fuel prices, with diesel costs increasing by approximately 59.5% year-on-year and transport costs rising by nearly 10%, reflecting the broad and immediate pass-through of fuel shocks across the economy. Across the country, transport workers are now stopping their services or refusing to

ply their routes, farmers are abandoning harvests because it is no longer viable to bring produce to market, and small businesses are operating at a loss. These developments demonstrate that fuel price increases are not isolated economic variables, but systemic shocks that ripple through food supply, livelihoods, and overall economic stability. While Republic Act No. 12316, signed by the President on March 25, 2026, now authorizes the President to suspend or reduce excise taxes on petroleum products until December 31, 2028, existing law still offers no parallel, standing mechanism to provide temporary relief from VAT on fuel. The Executive itself has acknowledged this limitation, noting that a separate enabling law is required before VAT on petroleum products can be adjusted or suspended.' In practice, this means that even when excise taxes are adjusted, VAT continues to be levied on already elevated fuel prices, effectively taxing the crisis itself and diluting the intended relief from existing emergency powers. Assistance routed back through slow and leak-prone subsidy programs often fails to reach affected sectors in time. In a Press conference on 13 April 2026, the President acknowledged that the oil crisis has resulted in the government earning windfall VAT revenues. He further justified retaining VAT on petroleum products on the premise that higher oil prices generate additional VAT collections, which can then be used to fund targeted assistance and subsidies for various sectors, not only for transport workers. This signals that the government prefers to first collect VAT and then channel the proceeds back to the public through aid programs, rather than to ease the tax burden directly at the pump. This view, however, fails to account for the slow pace of government processes and the structural problems that arise when relief must pass through multiple layers of bureaucracy. When petroleum taxes like VAT are funneled back through government systems, they pass through slow, layered processes that cause leakage and delay, whereas cutting taxes at source provides immediate relief in daily expenses. 1https://www.abs-cbn.com/news/business/2026/4/13/marcos-needs-enabling-law-to-cut-or-suspend- vat-on-oil-palace-1429

This bill therefore establishes a clear, time-bound authority to temporarily suspend or reduce VAT on the sale or importation of petroleum products once fuel prices reach crisis levels, so that tax relief can be deployed quickly, predictably, and without the leakages and delays inherent in traditional subsidy programs. By allowing the Executive to reduce or suspend the VAT on fuel once objective triggers are met or in cases of a declared national energy emergency, and to automatically restore the standard rate when conditions normalize, the measure ensures that relief is delivered immediately at the point of price formation rather than delayed through post hoc compensation mechanisms. This helps ease transport and logistics costs, stabilize prices, and enable economic activity at the community level to resume. At a time when other countries are adopting immediate, rules-based tax and energy interventions to cushion the impact of global oil shocks, the Philippines must ensure that its legal framework is equally responsive, coherent, and capable of delivering real-time relief. The absence of a VAT adjustment mechanism is a concrete constraint that limits the government's ability to respond effectively to an ongoing crisis. In view of the foregoing, the immediate passage of the bill is earnestly sought. LOREN LEGARDA

Senate Office of the Secretary APR 15 A8:08 TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session ) RECEIVED BY: SENATE 2043 S. No. — Introduced by Senator Loren Legarda AN ACT TEMPORARILY SUSPENDING OR REDUCING THE IMPOSITION OF VALUE-ADDED TAX (VAT) ON PETROLEUM PRODUCTS, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

Section 1. Authority to Suspend or Reduce VAT on Petroleum Products. -

Notwithstanding the provisions of Sections 106, 108, and 109 of the National Internal Revenue Code of 1997, as amended, the President of the Philippines may, upon the recommendation of the Development Budget Coordination Committee (DBCC), in 5 coordination with the Secretary of Energy, suspend the imposition of, or reduce the rate of, the Value-Added Tax (VAT) on petroleum products, subject to the following conditions: (a) The average Dubai crude oil price based on Mean of Platts Singapore (MOPS) has reached or exceeded Eighty United States Dollars (USD 80) per barrel for one (1) month immediately preceding the issuance of the suspension or reduction order; or (b) A state of national emergency or calamity has been declared by the President, and such condition has resulted in extraordinary increases in domestic pump prices of petroleum products.

1 The suspension or reduction may be applied to specific petroleum products, which 2 include, but are not limited to, (1) gasoline; (2) diesel fuel; (3) kerosene; (4) liquefied petroleum gas (LPG); (5) aviation fuel; (6) fuel oil and bunker fuel, and may be implemented either as a full suspension or partial reduction of the applicable VAT rate, 5 as may be warranted by prevailing economic conditions. 6 Sec. 2. Duration and Limitation. - Any suspension or reduction authorized under this 7 Act shall be effective for a period not exceeding six (6) months, unless otherwise 8 extended or terminated earlier by Congress through a joint resolution: 9 Provided, That the aggregate period of such suspension or reduction shall not exceed 10 one (1) calendar year; Provided, further, That any suspension or reduction shall be lifted when the conditions 12 under Section 1 no longer exist; 13 Provided, furthermore, That upon expiration of the suspension or reduction period, 14 the twelve percent (12%) VAT rate shall be automatically reinstated without need of 15 further legislative or executive action; 16 Provided, finally, that the authority granted to the President under this Act shall be 17 exercised only until December 31, 2028. 18 Sec. 3. Reporting Requirements. - Within fifteen (15) days from the issuance of any suspension or reduction order, and every month thereafter, the President shall, through the Secretary of Finance, submit to the Senate and the House of Representatives a report containing the following: (a) The factual basis for the suspension or reduction of VAT; (b) The estimated foregone revenues; and (c) The expected impact on inflation, fuel prices, and overall economic activity.

Sec. 4. Implementing Rules and Regulations. - Within fifteen (15) days from the

effectivity of this Act, the Department of Finance (DOF), the Department of Budget and Management (DBM), the Department of Economy, Planning, and Development (DEPDev), the Department of Energy (DOE), and the Bangko Sentral ng Pilipinas

1 (BSP), in coordination with the Bureau of Internal Revenue (BIR) and the Bureau of 2 Customs (BOC), shall jointly issue the necessary rules and regulations for the 3 implementation of this Act. 4 Sec. 5. Separability Clause. - If any provision of this Act is held invalid or 5 unconstitutional, the other provisions not so declared shall remain in force and effect. 6 Sec. 6. Repealing Clause. - All laws, decrees, orders and rules and regulations contrary 7 to or inconsistent with the provisions of this Act are hereby repealed or amended 8 accordingly.

Sec. 7. Effectivity. - This Act shall take effect immediately.

10 Approved,