Diesel Before TRAIN Law
Before TRAIN Law was implemented (2015-2017), there was zero excise tax per liter of diesel; hence,
the increase in diesel consumption during the period is not attributable to the non-taxation on diesel.
Generally, users of automobiles and other vehicles in the Philippines widely use diesel as a petroleum
product for their consumption. The general public's preference for diesel over gasoline is rooted in its
traditional pricing advantage and the government's zero-tax levying prior to the TRAIN Law. Other than
being tax-exclusive, the factors affecting the rise in gasoline consumption before TRAIN Law were also
attributable to increased consumption of diesel in the same period – the availability of discounts,
freebies, and promos offered by various oil companies to their customers and private consumption
being more preferred over the public mode of transportation.
Diesel During TRAIN Law
Interestingly, during the TRAIN Law, an inverse proportionality existed between increased
excise taxation and diesel consumption. The negative coefficient of -3041 indicates that as the
excise tax increased, there was a decrease in diesel consumption. With every unit increase in
tax, diesel consumption was reduced to 3041 units. Likewise, 67.1% of this reduction in
consumption can be attributed to the variations in excise tax due to TRAIN Law. Hence,
acceptance of the second hypothesis since the excise tax on diesel has a significant role in
reducing diesel consumption.
Based on the results above, the R-Squared constituting 67.1% may be attributed to the
new tax scheme introduced under TRAIN Law. Prior to its enactment, no tax was applied to diesel
petroleum. However, starting in 2018, excise tax petroleum adjustments were made to diesel.
This resulted in a gradual increase in tax on diesel per liter of ₱2.50 in 2018, ₱4.50 in 2019, and
₱6.00 in 2020 in succeeding years, resulting in higher diesel prices. In fact, yielding an average
annual growth of 56.67%, which is higher than gasoline, explains why the excise tax on diesel has
a greater impact on its consumption. With the new tax scheme enforced, leading to increased
diesel prices, diesel consumption in the road transport sector was deterred.
The presented result contributes a clearer understanding to support the claim of Chugh
and Cropper (2014) on policy adjustments and assess the implications of raising taxes on diesel
and petrol fuel and diesel cars. It indicated a 7.2% reduction in fuel consumption by levying a 34%
tax on diesel fuel and an additional 31% tax on petrol fuel, where 69% of its reduction in diesel
consumption occurred after shifting to petrol vehicles, which further resulted in a decrease of
the market share of diesel cars. This effect made Chugh and Cropper (2014) conclude that taxing
fuel is more effective than taxing cars to reduce fuel consumption based on the objective of fuel
and car taxation policy.
The whole section 4.2 presented that the excise taxes imposed on gasoline and diesel
impacted its consumption. Some factors are distinct to a petroleum product; however, other
external factors can be considered a common ground for both. One of the identified common
factors is the emergence of the Coronavirus Disease (COVID) pandemic. Specifically, DOE data
provides that gasoline and diesel consumption in 2020 resulted in a drop due to the COVID
pandemic by 14.73% and 25.64%, respectively, as shown in Appendix 5. Fewer vehicles plying on
the roads resulted in lower gasoline and diesel consumption as transportation is limited and the
entire community is under quarantine.
The second factor common to both petroleum types is the presence of alternative fuels
that vehicles use in road transportation. In the Philippines, DOE promotes the use of Liquefied
Petroleum Gas (LPG) or Autogas to offer more transport fuels while combating air pollution
(Quiros et al., 2017). Its emissions are cleaner relative to gasoline and diesel fuels, thus resulting
in better air quality, which is also one of the negative externalities aimed to be mitigated by the
policy amendments. Aside from LPG, other considered alternatives for transportation fuels are
Ethanol and Biodiesel. Since there are existing alternative fuels in the supply chain, consumers
are given more fuel options which likely induced gasoline and diesel consumption changes during
the TRAIN Law period.
Furthermore, the results of this study relatively conform to the concept that, from a
macroeconomic perspective, increases in food and energy prices can lead to a) higher domestic
prices of goods; b) downsized private consumption; c) higher interest rates, which could lead to
a decrease in fixed investments; d) a significant decline in the gross domestic product due to the
decrease in demand for consumption and investment (James et al., 2008). The second and fourth
effects support the findings of this investigation as presented in Tables 2 and 4. Since petroleum
products are inputs in the manufacturing and delivery of most goods and services, an increase in
the excise taxes on petroleum products will inevitably increase the overall prices of goods; hence,
people are affected by the price changes the government makes through the TRAIN Law (Mapa,
2018).
The TRAIN Law's new and progressive excise tax policy on automobiles may also influence
consumption trends of both petroleum products because the two are interrelated. The decrease in vehicle
sales caused by excise tax likely resulted in reducing petroleum consumption, as petroleum is one of the
vehicles' primary inputs to run. Aside from income generation, one of the underlying motivations for
imposing excise taxes on automobiles is to regulate vehicle sales to mitigate negative externalities
associated with vehicle use, such as carbon emissions and traffic congestion. The CAMPI report
demonstrates the reduction in automotive sales in the Philippines, which showed a 16 percent decrease
from the previous year (Crismundo, 2019).