Excise Tax on Pick-Up Trucks: Its Impact to Carmakers and Business Ventures

Taxation is the primary source of finances of a national government in order to operate and served its people. In fact, it is an inherent power of the state which means it can exist without constitutional grant. Taxes can be described as the lifeblood of the national government so in its absence, it may cause paralysis of the governing body or lack of motive power to serve its people because there are no funds to utilize to start projects that benefits the public. With this, the Philippines strives so hard to think which aspects to tax in order to acquire appropriate funding for the welfare of its people. However, despite its vision, Filipinos are having a hard time paying taxes, especially at present, due to inflation. The value of their money is lesser than the previous years thus entailing a need for salary and wage hike, price adjustments of commodities, or a stricter budgeting technique in order to survive their everyday living. That being said, taxation is supposed to be relative to the financial capacity of paying individuals but with the complex taxation system of the country, marginalized Filipinos are still heavily affected with taxes because of the different techniques employed by capitalist corporations in order to shift the tax burden to the customers instead of bearing the same. Nevertheless, levying taxes based on the relative capacity of the Filipinos is consistent with the concept of excise tax. In the Philippines, excise tax is a way to tax the richer with their enjoyment of their privileges like buying sin products such as tobacco and alcohol or enjoying certain activities such as riding the yacht and doing sports.

Another object which is covered by excise tax in the Philippines is the automobiles particularly those of personal use. The recent TRAIN law imposed a tax on automobile purchases as it is seen that there is a significant rise on car owners over the years which made the roads more congested and resulted for some portions of streets to be illegally occupied as parking spaces of the people without an intended space for such. However, pick-up cars are an exception for this. The main reason is that this specific model may be used for dual purpose: one is for personal and leisure, and two is for business. However, it is seen by the legislators that the latter is not being exercised by most pick-up car owners. With this, it is being studied by the legislators if it is appropriate to tax such. In the recent meeting of the legislators, the lower house agrees and approves the proposal. Notwithstanding everything that was said, there is a need to understand the purpose of excise taxes and create a logical stand on this. If you are a potential pick-up car user or a current one, understanding why excise tax is being considered to be imposed on pick-up cars in the Philippines is necessary to form a concrete stand and opinion such as if it is reasonable or just another way of capitalists to shift the tax burden to its customers. So, here are the basic information about the Philippines’ excise tax system with particular focus on the proposed imposition on pick-up cars.

What is an Excise Tax in the Philippines?

               The Bureau of International Revenue (BIR) defines excise tax as a tax on production, sale or consumption of a commodity in the Philippines. This applies to commodities manufactured internationally and domestically. There are two types of excise tax: 1) Specific tax – tax imposition based on volume capacity or other unit of measurement, 2) Ad Valorem tax – tax imposition based on the specified value of the commodity. The term commodity is too broad to understand which is considered covered by excise tax in the Philippines. Hence, here are the major classifications of excisable commodities in the Philippines.

  1. Alcohol Products
  2. Tobacco Products
  3. Petroleum Products
  4. Miscellaneous articles
    1. Automobiles
    1. Non-essential goods
    1. Non-essential services
    1. Sweetened Beverages
  5. Mineral Products

If you want to know more about the major classifications of excise tax, you may visit this link to fully comprehend the rules and regulations in imposing excise taxes. However, for this guide, the focus is on the fourth classification which includes automobiles to which the pick-up cars belong.

Reason of Taxing Cars and Its Impact on Automobile Industry

               Recently, the Department of Finance (DOF) Secretary has sent a letter to the House committee regarding the enhanced version of Passive Income and Financial Intermediary Taxation Act (PIFITA) which includes the removal of the tax exemption of pick-up cars. The said car model has a hybrid use for its owners. However, in the recent of observation of Department of Trade and Industry (DTI), the population for pick-up car owners using the said model for business is too low making it advantageous for those financially capable to stretch their budgets for a better car model like pick-up cars. In addition, pick-up cars are often being converted for leisure instead of utilizing such for trucking.

               With this, the DOF has studied the potential funding increase resulting from taxing pick-up cars. The assistant secretary of DOF noted that if this is passed into law and takes effect immediately, additional tax collections amounting to PHP 52.6 billion would be garnered from 2022 to 2026. This may be positive for the national government as this will enable them to have more funds for the welfare of the public.

               However, in the perspective of carmakers, the excise tax to be imposed on pick-up cars is detrimental for their recovery. It is accounted that pick-up car sales are 17% of the overall automobile sales. Additionally, pandemic has affected their sales and have not recovered since then. In fact, during pandemic, there are a lot of car owners who returned their vehicles because of their financial incapability. With this, the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) President urges the legislators to reconsider the imposition of tax on this car model. It is known for many that the recent TRAIN law increased the prices of sedans to a significant amount due to new tax rates. This made it difficult for the people especially those in the lower income sector to afford a personal car. The CAMPI President recognizes that demand for cars are price sensitive so he wants the imposition to be reconsidered.

               The automobile industry is only starting to recover from the financial impact brought by the pandemic as evidenced by the recent reported sales of 18.4% from January to July of 2022. From the total sales of 182,687 units, 75.18% is accounted for commercial vehicles. With this, there is an increasing demand for pick-up cars. CAMPI and Truck Manufacturers association fear that the recovery will be halted in case that excise tax on pick-up trucks will be passed into law.

Is Investing on Pick-up Trucks Still Profitable in a Long-Term Perspective?

               This question cannot be easily answered by yes or no. However, you will be significantly impacted by the price increases if you will not be purchasing your pick-up truck at this moment. If you are still saving up for purchasing such in preparation of a potential business venture, you might consider a more conservative and profitable investment like real estate. The demand for real estate does not decrease as the home ownership in the Philippines is still low. A huge portion if the population still rents a house. Additionally, land usually continue to increase its value over time. In a business perspective, the recent increases on rental prices may be seen as profitable for real estate investors. The market and circumstances of the rental location dictates the rental price of your property. With this, why not consider investing on Bria Homes? This is offers affordable house and lot which can be financed through bank or Pag-IBIG housing loan. It is a good investment as the properties are situated on strategic location where development takes place. With corporations trying to develop business centers even on provinces, Bria is one of the early adopters of this opportunity thus it developed subdivisions on these locations so potential homeowners can enjoy the lower prices of house and lot while the area is still on development.

In case that you own a land that has not been used for years, this might be the time to invest and develop such into a rental property. Unlike a trucking business, rental properties are more conservative and catered for less risky investors. There are different ways to finance such and acquire a land intended for this purpose. Hence, for tighter budget investors, this might be a better alternative if you plan to have a long-term investment which will make your future more sustainable.