An evaluation of the effects of the tax on refined petroleum products in the Philippines

Abstract

This paper uses an aggregate modelling approach to assess the effect of taxes on refined petroleum products in the Philippine economy. The approach used in the analysis consists of a general equilibrium model comprising 14 producing sectors, 14 consuming sectors, 3 household categories classified by income and a government. The effects of removing the 48% tax on premium and regular gasoline and the 24% tax on other refined petroleum products on prices and quantities are examined. The results are revealing. For example, the consequences of a complete elimination of refined petroleum product taxes would be an increase in output by all producing sectors of about 3.7% or about 2.65 hundred billion Philippine pesos, a rise in the consumption of goods and services by about 13.6% or 4.2 hundred billion Philippine pesos, a rise in total utility by 14.3% or 4.5 hundred billion Philippine pesos and lower tax revenue for the government of 62.4% or 2.8 hundred billion Philippine pesos. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities. That is, while the modelś equilibrium values do vary in response to different assumptions of the values of these elasticities, the fluctuations are not so enormous to suggest that the model is unrealistically sensitive to these parameters.