MOTORCYCLE taxis (MTs) plying the streets of Central Luzon and Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon) are legal and operating in accordance with several memoranda issued by government regulators and the Motorcycle Taxi Technical Working Group (MC TWG), the team mandated by Congress to oversee the two-wheeled taxis while lawmakers are in the process of passing the legislation to regulate their operation.
As early as last May, Land Transportation Franchising and Regulatory Board Chair Atty. Teofilo Guadiz III announced that the regulator will allot 8,000 slots to four accredited MTs—Para Xpress, Maxim, Dingdong and GrabBike—to allow them to operate outside Metro Manila, a move that policymakers hailed as healthy for competition and beneficial to commuters.
In a joint circular signed by Guadiz and Land Transportation Office chief Atty. Vigor Mendoza II last October 11, the four MT companies were given the authority to operate in Region III (Central Luzon) and Region IV-A (Calabarzon), with an initial number of allocated rider cap of 2,000 each “subject to adjustment or increase upon request by the participants with proof of public necessity.”
The allocation of each MT company includes riders in the National Capital Region who have already been onboarded. The circular further states that in Metro Manila, MT firms “are allowed to retain their riders provided it does not exceed 500 riders each.”
The MC TWG directed the MT companies to submit a master list of its onboarded riders for “purposes of assignment of a rider code/number” and stressed that “only those onboarded riders with corresponding rider code/number shall be allowed to operate.”
Any activation, deactivation or reactivation shall be submitted to the MC TWG for its approval, the memorandum stated.
Last November 25, 2024, Guadiz affirmed that the new MT slots were for Central Luzon and Calabarzon only. The MTs in Metro Manila have remained steady at 45,000 since three years ago.
Under current laws, motorcycle taxis are prohibited from operating in the country. In 2019, however, Congress paved the way for the introduction of motorcycle taxis under a pilot study program to determine if these are safe for public transport.
An LTFRB TWG study, “Motorcycle Taxis in the Philippines: A Comprehensive Analysis for Permanent Integration,” completed early this year and submitted to Congress revealed that MTs service an estimated 370,000 commuters daily nationwide.
The study concluded that MTs “have the potential to alleviate traffic congestion by reducing the number of vehicles on the road, thus improving traffic flow” and that establishing MTs “as a permanent mode in the country’s transportation system is both feasible and advantageous.”
In July, the House of Representatives passed House Bill Number 10424, which allows the operation of motorcycles as common carriers for passengers and goods, including parcels and mail. The Senate has yet to pass its version of the measure.
‘Prohibitive tax causing revenue loss from tobacco’
A renowned US economist said the increasing tobacco tax rates and subsequent revenue declines in the Philippines indicate that tax rates have exceeded the revenue-maximizing rate and ventured into what is known as the “prohibitive range” of taxation.
“The phenomenon of declining tobacco tax collections in the Philippines can be explained using the Laffer Curve — the relationship between tax rates and tax revenue. Tax revenues increase with increasing tax rates until a revenue-maximizing point is reached, after which further increases in tax rates result in declining tax revenue,” Dr. Arthur Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm, said in an interview.
Laffer, a former member of President Ronald Reagan’s Economic Policy Advisory Board, is the creator of the Laffer Curve, which illustrates the relationship between tax rates and government revenue.
Republic Act No. 11346, the Tobacco Tax Law of 2019, raised the excise tax on cigarettes to P50 per pack starting January 1, 2021, with a 5% annual increase, currently at P63. Vapor products are taxed differently: P54.6/ml for nicotine salt and P63/10 ml for freebase.
He advised that “The government should take steps to realign tobacco tax rates closer to the revenue-maximizing rate. Doubling down with further revenue-losing tax rate increases is never a sensible solution to a tax revenue loss.”
Laffer said that changes in a tax rate have two effects: an arithmetic effect and an economic effect. “Arithmetically, if a tax rate decreases, tax revenue will also decrease. Economically, however, a lower tax rate further incentivizes output, employment, production, and consumption, which increases the tax bases to which the tax rate is applied. The opposite is true for a tax rate increase. In all cases, the arithmetic effect and the economic effect are opposing forces,” he said.
He said the price elasticity of demand for a given good would impact the shape of the Laffer Curve and dictate the revenue-maximizing point on the curve. If elastic, the revenue-maximizing tax rate will be lower, as consumers will be more sensitive to price increases. If inelastic, the revenue-maximizing tax rate will be higher, as consumers will be less sensitive to price increases.
“As previously discussed with declining tobacco tax revenues after successive tobacco tax rate increases, it seems that the Philippines has pushed tobacco tax rates past the point of revenue maximization on the Laffer Curve, and any further increases to the tax rate at this time would likely result in further revenue declines and increases in illicit trade,” he said.
Laffer also warned that high tax rates on commodities can fuel the growth of illicit trade. “When a commodity becomes too expensive for consumers due to taxation, they will reduce consumption of that commodity or substitute away from that highly taxed commodity in part through consumption of illicit goods,” he said.
He noted that the nature of tobacco as a commodity, coupled with varying price and tax structures across different countries or regions, can incentivize illicit trade. “Potential profit opportunities for smugglers — and savings for consumers — must be weighed against the likelihood and consequences of enforcement. In this sense, the proliferation of illicit trade is a function of high tax rates coupled with low affordability and likelihood of enforcement,” he said.
He lauded the Philippines’ approach to taxing novel tobacco and nicotine products like heated tobacco products and nicotine pouches but underscored the need to simplify the tax structure for e-cigarettes.
“Unlike other tobacco and nicotine products, e-cigarettes are taxed under a two-tiered system in the Philippines, which is leading to significant enforcement issues. Reforming e-cigarette taxation into a simplified uniform rate — as has been done for other tobacco and nicotine products — should be an immediate priority,”
Laffer is advocating for a tax system that raises necessary revenue while minimizing economic damage.
“By coupling tax base expansion with tax rate decreases, the Philippines can bolster and diversify tax revenue collection without jeopardizing economic growth. Other areas in which to consider simplifying and rationalizing are regulations for capital markets and the fiscal regime surrounding the mining sector,” he said.
