Study says gov’t can still raise vehicle, oil taxes

Given the poor state of public transportation in the country, further jacking up excise slapped on motor vehicles and petroleum products would not deter purchases and even help raise more revenues for the government, according to the state-run National Tax Research Center (NTRC).

“In the case of income elasticity of demand for excisable products, results show that people are willing to spend their extra income on buying a car even with an increase in its price since they prefer to own a car than utilizing public transportation. For revenue generation, the government may still opt to impose additional tax on automobiles in the future since automobile is price inelastic,” the think tank said in a report titled “Elasticity of Demand of Selected Excisable Products: Calendar Years 2008-2018.”

The additional revenues may be used to improve public transportation, especially mass transportation, such as repair and maintenance of current railway systems, and adding more railways all throughout the country, or even subsidizing the fare of public commuters, NTRC said.

NTRC defined price elasticity as “the sensitivity of consumer demand of selected excisable products to changes in prices.”

In general, NTRC explained that the more inelastic the demand is for a certain product, the larger the excise revenue that can be generated from that product, while the more elastic the demand is, the easier it is for consumers to reduce quantity instead of paying higher prices.

In the case of vehicles, excise collections climbed by 30.2 percent from P4.2 billion in 2017 to P5.5 billion last year, thanks to higher rates under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

However, NTRC noted that domestic motor vehicle sales skidded by 21.8 percent to 109,020 units in 2018 during the TRAIN law’s first year of implementation.

The NTRC’s computations nonetheless showed that demand for automobiles was “price inelastic at 0.87, which suggests that a 1-percent increase in price will only yield a minimal decrease in demand of 0.87 percent.”

“Some people would still buy a car even with a price increase of 1 percent given that there is an additional income. According to the survey conducted by the National Economic and Development Authority in 2015, 77 percent of Filipinos preferred to use their own car to travel to places than using public transportation,” NTRC said.

“Increasing demand for cars may be attributed to the desire of Filipino families to own a car in the future for more mobility. Consumers perceived that owning a car might be the best substitute for public transportation given the frequent interruptions of the country’s railway system and heavy traffic congestion being experienced in the metro,” NTRC added.

As for oil products, which NTRC noted were considered necessities since used primarily as input for manufacturing and transportation, calculations showed these were also price inelastic.

NTRC said that price elasticity of diesel was at 0.09; gasoline, 0.24; and household LPG (liquefied petroleum gas), 0.23. “Since these products are considered necessities, price changes have little effect on their demand.”

As such, NTRC said that imposing excise on petroleum products to address environmental and health issues would be more effective if there were substitutes for fuels for transportation and the manufacturing sector.