Carmakers buck lifting of excise tax on pickup trucks

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Carmakers buck lifting of excise tax on pickup trucks
Photo by weston m on Unsplash
  • Removing excise tax exemption will impact sales of pickup trucks as well as government revenues, according to Chamber of Automotive Manufacturers of the Philippines Inc.
  • The carmakers’ group said removing the exemption will delay the recovery of pickup sales to pre-pandemic levels
  • Restoring the excise tax was part of the Duterte administration’s fiscal consolidation plan

Philippine car manufacturers are opposed to government’s plan to abolish the excise tax exemption for pick-up trucks, saying this could hit vehicle sales and also affect government revenues, the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) said.

The proposal was floated to lawmakers last week by Finance Secretary Benjamin Diokno as part of a fiscal consolidation plan.

In a statement, CAMPI president Rommel Gutierrez said: “CAMPI strongly objects to the proposal to remove excise tax exemption of pick-up trucks, a major component of the commercial vehicle segment.”

He said lifting the excise tax on pickup trucks will hurt manufacturers’ sales volume, resulting in less government revenues.

Pickup sales missed their target in 2021, a wary sign for economists who look at vehicle sales to gauge consumer appetite and measure economic strength through sales of these durable goods.

Gutierrez said any new tax on motor vehicles will derail the recovery of the automotive industry, whose sales volume has yet to return to pre-pandemic levels.

Restoring the excise tax was part of the Duterte administration’s fiscal consolidation plan, as its supporters said the pick-up trucks were being converted into passenger or sport utility vehicles.

This is contrary to the purpose of Republic Act 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law, that granted the special treatment.

Lower House proposal

The Lower House committee on ways and means on August 24 had already approved an expanded bill that includes lifting the excise tax exemption on pickup trucks.

Removal of the excise tax exemption of this type of vehicle is one of new measures the Department of Finance (DOF) sought to insert in the Passive Income and Financial Intermediary Taxation Act (Pifita).

The bill had long been touted as a revenue-neutral capital markets taxation reform measure, meaning the government won’t collect additional taxes after it becomes law.

This is no longer the case. With the House committee’s approval of the bill on Aug 24, government revenues from the lifting of the excise tax are expected to increase by P18 billion next year and P7.9 billion in 2024 before declining starting 2025.

Other measures included in the Pifita are the proposed mining fiscal regime, which will charge a 5% royalty on all large-scale mining operations in the country, plus a 10% export tax on the gross value of mineral ores, on top of a minimum “fair” government share from mining earnings.

Finance Secretary Benjamin Diokno had written a letter to House ways and means committee chairman and Albay Rep. Joey Salceda urging his panel to pass an “enhanced” version of Pifita.

Vehicle taxes were not part of Pifita, but the DOF has lobbied for other tax administration provisions of the comprehensive tax reform program, such as taxation of pickup trucks.

“Together with the Department of Trade and Industry (DTI), we propose the inclusion of a provision removing the excise tax exemption of pickup trucks introduced under Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law,” Diokno wrote Salceda.

“Pickup trucks were granted the special tax treatment for their utility as workhorses for small business owners and professionals in their livelihood.”

Diokno, however, noted that the Department of Trade and Industry had observed that “manufacturers modify pickup trucks to serve as passenger, leisure or sport utility vehicles.”

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

Imposing the excise tax on pickup trucks would generate additional tax collections of P52.6 billion from 2022 to 2026, the DOF estimated. The House ways and means committee this approved the additional measures.