House committee OKs removal of pick-up trucks’ excise tax exemption

Pick-up trucks will soon become more expensive as the House committee on ways and means on Wednesday approved an expanded bill that included the slapping of excise tax on this commercial vehicle segment.

The removal of the excise tax exemption of pick-up trucks formed part of the additional measures that the Department of Finance (DOF) this week lobbied for inclusion in what was formerly called as the passive income and financial intermediary taxation act (PIFITA).

In the past, PIFITA was pitched as a revenue-neutral capital markets taxation reform measure, which meant the government would not collect additional taxes once it passed into law.  However, the bill approved by the House committee on ways and means is now expected to yield incremental revenues amounting to P18 billion by next year, and P7.9 billion in 2024, before collections taper off starting 2025.

The committee also approved the proposed mining fiscal regime, which Finance Assistant Secretary Valery Joy Brion said would add a total of P37.52 billion in tax revenues to the state coffers. The measure will slap a 5-percent royalty on all large-scale mining operations in the country, plus a 10-percent export tax on the gross value of mineral ores, on top of remitting a minimum “fair” government share from industry revenues.

During Wednesday’s hearing, House ways and means committee chair and Albay Rep. Joey Salceda read a letter sent by Finance Secretary Benjamin Diokno to him last Monday, urging the committee to pass an “enhanced” version of PIFITA.

Besides reducing the number of tax rates on passive income and financial intermediaries to 52 from 74 at present, the DOF proposed to simplify the system through uniform and harmonized business tax rates, including on premiums of health maintenance organizations (HMOs), life insurance, pension, and pre-need products.

The DOF also pitched to adopt a stock transaction tax, rationalized documentary stamp tax on financial transactions, as well as clarification of collective investment schemes (CIS) taxation.

On the vehicle tax, Diokno, in his letter to Salceda, said pick-up trucks were granted the special treatment (under Republic Act No. 10963) for their “utility as workhorses for small business owners and professionals in their livelihood.”

However, Diokno said the Department of Trade and Industry had observed that the “manufacturers modify pick-up trucks to serve as passenger, leisure, or sports utility vehicles (SUVs).”

“This scheme allows manufacturers to circumvent the provision of the [TRAIN] law and purpose of the exemption,” Diokno said.

The DOF had estimated additional tax collections would amount to P52.6 billion from 2022 to 2026 if the excise tax would be slapped on pick-up trucks.