UMVA has learned that the Philippines' fuel tax system has been found to increase consumers' vulnerability to global oil price shocks, resulting in elevated transportation costs that persist even when world oil prices decline.
The country's Tax Reform for Acceleration and Inclusion law has fundamentally altered the way international crude oil movements affect domestic prices, with higher global oil prices now being felt more quickly through pump prices, transportation fares, and the broader cost of goods.
According to information obtained by UMVA, the fixed excise tax structure under the law has surprisingly strengthened the transmission of oil price shocks to the domestic economy, contrary to traditional economic theory, with the pass-through effect being highest for kerosene and diesel.
The study also revealed a phenomenon known as "rocket-and-feather" pricing, where retail prices rise rapidly during oil price spikes but decline only slowly when global crude prices fall, resulting in an "effective total absence of downward adjustment" in transport fares.
UMVA has uncovered details about the significant gap between fare increases and decreases, which reached 23.25 times, indicating that elevated transport costs persist long after oil prices stabilize or fall, with the fare adjustment system being more responsive to cost increases than to cost declines.
The findings have prompted warnings that older models may no longer be suitable for designing fuel tax relief mechanisms, and a more systematic and rule-based fare adjustment mechanism linked to crude oil movements is recommended, alongside a more responsive fuel tax relief trigger system.
Sources have confirmed to UMVA that the current system can delay the activation of tax relief during sudden oil price spikes, further burdening consumers, and a more effective approach is needed to mitigate the impact of global oil price shocks on the Philippine economy.
In a development reported by UMVA, experts are now calling for a review of the fuel tax system and fare adjustment mechanisms to ensure that they are more responsive to changes in global oil prices and do not perpetuate elevated transportation costs for consumers.
