Dear PAO,
I’ve been hearing in the news that the president has proposed lifting the excise tax on petroleum products in order to help the motorists. What is an excise tax, what products are subject to this type of tax, and how much is the rate?
Ish
Dear Ish,
The answer to your question can be found in Section 129 of Republic Act (RA) 8424, otherwise known as the National Internal Revenue Code of 1997, as amended by RA 10963 or Tax Reform for Acceleration and Inclusion (Train Law).
An excise tax is an indirect tax. It applies to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition, and to things imported, as well as services performed in the Philippines (Sec. 129, Id.). In the case of Maibarara Geothermal, Inc. v. Commissioner of Internal Revenue (GR 250479, July 18, 2022), the Supreme Court, speaking through Associate Justice Jhosep Lopez, defined indirect taxes as “taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to the [buyer], [the seller], in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered.”
Excise tax imposed to the goods is in addition to the value-added tax (VAT). Unlike the VAT, which applies broadly to most goods and services, excise tax is levied only on particular items that are considered non-essential, luxury goods, or products that may have harmful effects on public health or the environment. For example, products such as tobacco and alcoholic beverages are heavily taxed to reduce their consumption and mitigate their adverse health effects.
The following goods are subject to excise tax: (1) “sin products” such as cigarettes, cigars, and alcoholic products, which are taxed at higher rates under RA 10351 otherwise known as Sin Tax Reform Law of 2012 (Sec. 142-146, Id.); (2) petroleum products, including gasoline, diesel, kerosene, and liquefied petroleum gas (LPG) are also subject to excise tax of P3 to P10 per liter (Sec. 148, Id.); and (3) automobiles, which are taxed depending on their manufacturer’s price or importation value, with higher tax rates imposed on more expensive vehicles (Sec. 149, Id.). In addition, certain luxury goods and services, such as jewelry, perfumes, yachts, and cosmetic procedures, are likewise subject to excise taxes as part of the government’s policy to tax non-essential consumption. Also, on Jan. 15, 2026, the Bureau of Customs began implementing the annual increase in excise tax rates on vapor products, such as nicotine salt or salt nicotine (Sec. 144, Id.).
Overall, excise tax plays an important role in the Philippine taxation system. It not only provides a significant source of government revenue but also serves as an instrument to discourage the consumption of harmful products and regulate the demand for luxury goods. However, in light of the ongoing conflict in the Middle East, the proposed lifting of excise tax on petroleum products may help motorists by mitigating the negative impact of sudden price increases in fuel.
We hope that we were able to answer your queries. This advice is solely based on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Thank you for your continued trust and support.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net
