ASSESSMENT OF TRAIN’S COAL AND PETROLEUM EXCISE TAXES

Without significant changes in the energy mix, increases in the consumption of fossil fuels will lead to increases in CO2 emissions. Such a scenario with rising fuel prices can thereby limit the growth in production in the country. They mentioned that a carbon tax can effectively reduce industrial carbon emissions after 2020 given the increase in the carbon price.

The assessment of the impact of excise tax changes in the Philippines is performed using a CGE model. In this case, the tax at a certain rate determines the fractional increase in the price level of the taxed goods, as in the case of excise and value added taxes. Using the results in the model, we analyzed the effects of the tax changes on two areas - household well-being and carbon dioxide (CO2) emissions - through a micro-simulation using the accounting approach.

The study calculates changes in the incidence of poverty in the economy using a micro-accounting approach. The method uses information on factor incomes and price changes in the CGE model. In addition, income streams that include producers, government, financial intermediaries and the rest of the world (row) are also considered in SAM.

Therefore, the basic excise rates (ETR) in the CGE model are in ad valorem rates.

Table 1: Poverty impacts of changes in rice, fuel and transportation prices (Son, 2008) 2.3 Impacts on Environment

SIMULATION RESULTS AND DISCUSSION

Manufacturing in general shows a decrease in production, as these activities are highly dependent on the energy input. There is a small increase in production in the capital and skilled labor intensive sectors: telecommunications (+1.6%) and finance (+1.2%). Service sectors that rely more on low-skilled workers, such as transport services (-1.8%) and construction (-0.4%), showed a decline in output.

Changes in domestic supply, which includes both domestic production and imports, are shown in Table 5. When the excise duty on fossil fuels increases, the price of coal increases by 0.4% while the output price of the mining sector increases by 5.2 % and the price of oil increases. with 8.5%. Construction and the metal industry show a decrease in employment, while public administration, education and health show an increase.

Note: Coal, natural gas, and crude oil are integrated into the oil and gas sector, while electricity transmission, the electricity generation sectors (coal, hydroelectric, geothermal, etc.), and other utilities are integrated into the utility sector if the Labor Force Survey does not disparate information in the various industrial and service sub-sectors. Changes in welfare are measured by the change in the incidence of poverty, which is affected by the change in income (through the changes in factor returns) and the change in commodity prices. Given that increases in commodity prices are higher than increases in returns to labor and capital (representing the change in income), there is a slight decrease in real income and thus an increase in poverty incidence.

Across all sectors, the increase in excise duty resulted in CO2 emissions falling by 0.8% and this is mainly due to the decline in transport service activities and electricity generation sectors, particularly oil and coal.

Table 4: Changes in Production Output, % Change from Base (authors’ calculations)

SUMMARY AND IMPLICATIONS FOR GOVERNMENT, BUSINESS, AND HOUSEHOLDS

In addition to the impact on incomes, and thus on poverty, as mentioned above, price increases also have other effects, for example on children. This is a very important factor, especially in the context of the high incidence of child malnutrition and stunting in the country. Given that there is a slight increase in prices under the TRAIN law, it would be good to consider mitigation mechanisms to reduce the impact on one of the most vulnerable socio-economic groups.

For the second consideration, the design of measures to increase income could also consider how these would lead to improved use of alternative energy policies that would lead to greater sustainable development outcomes. The results in this simulation had shown that while the increase in excise taxes slightly reduced the use of fossil fuels, the increase in economic output due to the influence of other components of the TRAIN increased, ironically, the use of these types of energy sources only due to the fact that these types of plants have a higher generating capacity. Greater efforts to mitigate energy use by businesses and households would also allow for a reduction in emissions while minimizing the impact on the overall output of the economy.

The implication here is that measures that improve public revenue, while having a positive impact on the environment, have a detrimental impact on welfare. As the simulation exercise only focused on changes in excise tax rates, there may also be intertemporal effects of the tax reform on output, employment and welfare. The authors gratefully acknowledge the support given by the Philippine Institute for Development Studies; a preprint of the study was published under the institute's discussion paper series (https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsdps1841.pdf).

Available at http://www.pep-net.org/sites/pep-net.org/files/typo3doc/pdf/reconciliation-Philippines.pdf (accessed 15 July 2018). Available at https://www.eco-business.com/news/what-will-a-coal-tax-hike-mean-for-the-philippines/. Presentation given at the International Center for Innovation, Excellence and Transformation in Governance and the Ateneo Center for Economic Research and Development Forum at TRAIN, Ateneo de Manila University, Quezon City, Philippines.

Available at https://businessmirror.com.ph/coal-tax-to-help-phl-meet-emission-targets-group/. An analysis of the impact of rice and fuel price changes on poverty in the Philippines. Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: Overview of Modeling Framework and Syntax.

Available at http://www.tips.org.za/research-archive/trade-and-industry/item/1680-the-impact-of-rising-food-and-fuel-prices-on-small-business/ . Exhibits 1a-1e: Macro-SAM for 2015 (derived from authors' calculations on PSA and Bangko Sentral ng Pilipinas [BSP] data).