House committee approves excise tax for pickup trucks

• Lifting of excise tax exemption expected to drive pickup truck prices higher

• Additional revenues from removing the exemption are forecast to reach P18 billion in 2023 and P7.9 billion in 2024

• Other measures inserted in the approved Passive Income and Financial Intermediary Taxation Act (Pifita) are a 5% royalty on large mining firms and 10% export tax on mineral ores

The Lower House committee on ways and means recently approved an expanded bill that includes lifting the excise tax exemption on pickup trucks. Prospective buyers should expect pickup truck prices to rise as a result.

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 this week (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.

These levies on large-scale mining will add a total of P37.52 billion in tax revenues to government coffers, Finance Assistant Secretary Valery Joy Brion said.

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. The congressman read Diokno’s letter during a meeting on August 24.

Aside from reducing the number of tax rates on passive income and financial intermediaries to 52 from 74, the DOF suggested simplifying the system by applying uniform and harmonized business tax rates that will also cover premiums of health maintenance organizations, life insurance, pensions and preneed products.

Diokno also proposed a stock transaction tax, rationalized documentary stamp tax on financial transactions, and clarification of collective investment schemes taxation.

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.