Exemption from Excise Tax of Petroleum Products and Refund Mechanism
By: Atty. Aziza Hannah A. Bacay on May 21, 2026
AS a general rule, petroleum products are subject to excise tax, the rates of which vary depending on the kind of product and volume involved. Recent international conflicts, however, brought about an energy crisis and price hikes, which triggered the enactment of Republic Act (RA) 12316 (signed March 25, 2026), authorizing the President of the Philippines to suspend excise taxes on petroleum products.
Accordingly, the Office of the President issued Executive Order 114 (April 16, 2026) covering liquefied petroleum gas, when used as raw material for production of petrochemical products or used for motive power, and kerosene except when used as aviation fuel. The suspension is effective for three months, subject to review on a monthly basis.
Even without the excise tax suspension, there are certain sales of petroleum products that are exempt by express provision of law and international agreements. Under Section 135 of the National Internal Revenue Code (NIRC), exemption from excise tax is applicable to sales to:
– international carriers of Philippine or foreign registry directly importing petroleum products, on their use and consumption outside the Philippines;
– exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use of consumption; and
– entities that by law are exempt from direct and indirect taxes.
For exemption of sale to international carriers to apply, the Court of Tax Appeals (CTA) en banc, in one case, held that the following must be established:
– proof of foreign registry of the international air carriers, or in case of Philippine-registered air carriers, the proof of authority to operate international flights;
– proof that the petroleum products were used or consumed outside the Philippines; and
– proof that the petroleum products were stored in bonded storage tanks and disposed of in accordance with the regulations.
While there may be a clear excise tax exemption under the law and treaties because of the status of the buyers, Section 130 (A)(2) of the NIRC still mandates that excise tax returns should be paid by suppliers before removal from the place of production. Furthermore, Section 131(A) likewise provides that the excise tax on petroleum products must be paid before the release of the imported articles from the customs house. Effectively, the taxpayer-supplier will still have to pay the excise tax first and have to seek or claim a refund or tax credit of the excise taxes it paid for petroleum products sold to exempt entities.
RA 12006, otherwise known as the Create More Law (effective Nov. 28, 2024), introduced Section 135-A of the NIRC, which provides and makes clear the refund mechanism for excise tax paid by suppliers on exempt sales. Previously, while international carriers and exempt entities enjoyed tax exemptions, the suppliers who originally paid the excise taxes faced severe challenges in recovering these amounts. There were several decisions in the past which denied suppliers’ claims on the basis that the real exempt parties are the carriers and not them.
Section 135-A now clearly states that the claim for refund should be made within two years after the payment of excise tax and be decided by the Commissioner of Internal Revenue (CIR) within 90 days from the submission of complete documents. In case of denial, the taxpayer must file any request for reconsideration within 15 days from receipt thereof. The CIR shall then resolve the reconsideration within 15 days from receipt. Should the reconsideration be fully or partially denied, the taxpayer may elevate the claim to the CTA by filing a petition for review.
In alignment with the amendments introduced by Create More Law, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) 038-2025 (Sept. 8, 2025), which consolidated the guidelines and procedures for processing of claim for refund of excise tax on petroleum products. RMO 038-2025 provides that:
– the applications for refund should be filed before the appropriate BIR Revenue District Office, Large Taxpayer Audit Division, or Large Taxpayer District Office;
– the application letter should contain the background of the transaction, legal and factual basis of the claim, material dates and details of the sale and should be accompanied by BIR Form 1914 and supporting documents;
– all claims for refund shall be made on a quarterly basis, aligned with the taxpayer’s accounting period, and shall be filed within the two-year prescriptive period; and
– the taxpayer must submit a sworn statement attesting that the amount claimed was properly disclosed and recorded as accounts receivables from the government in the taxpayer’s audited financial statements and books of accounts, the claim is duly supported by journal entries, the excise taxes were not passed on to customers and are not recorded as expenses in books of accounts and all documents submitted are complete.
Aziza Hannah A. Bacay is a Senior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com
The article was published at the More to Follow Column at The Manila Times on May 21, 2026. Please see this link.