MANILA, Philippines — A government think tank has welcomed the proposal to expand the list of non-essential items that are subject to excise tax, saying this reform can redistribute income, curtail consumption of luxury goods and boost state coffers.
In a journal uploaded on its website, the National Tax Research Center (NTRC) said there are merits in increasing the number of non-essential goods subject to excise tax.
“The proposal can be justified on the following grounds: it has the potential to redistribute income as it is based on ability to pay; it improves the tax system as it captures income that might otherwise escape the income tax net; it curtails conspicuous consumption and it raises additional revenue for the government, NTRC said.
According to NTRC, the proposed measure may discourage consumption of luxury items and help increase savings, which could instead be used for capital necessary to sustain economic growth.
The proposal could also reduce the purchase of luxury goods with high import content, leading to more savings on foreign exchange, NTRC said.
“In spite of its confirmed bias against the consumption of luxuries to be taxed, the proposal will still raise some revenue with the expected increase in income and with the persistence on conspicuous display of status symbol among the higher income groups,” the think tank said.
Since the proposal is progressive in nature or based on ability to pay, the incidence of the tax will fall primarily on upper middle income groups, NTRC said.
The research center believes the measure could redistribute income, assuming that proceeds from the tax collections would be spent on social projects.
However, the NTRC also recognized that there may be challenges in introducing tax on luxury goods.
Firstly, the specific goods and services that will be considered luxury should be well-defined to avoid unnecessary burden on the public.
NTRC said the expected reduction in the purchase of luxury or non-essential items could affect the sales and profits generated by local businesses.
“The imposition of such taxes, as well as the inclusion of certain items in the list of non-essential goods could cause a sharp decline in the sales of these particular items, which could cause problems for the local producers of luxury or non-essential items and retailers, so much so that they have to lay off employees or cut back on the production of these items,” NTRC said.
The institution also noted that buyers may shift from purchasing local to buying luxury goods overseas.
“Overseas Filipino tourists or those travelling abroad would buy these luxury and non-essential goods overseas without declaring them when they re-enter the country in order not to pay taxes and duties,” NTRC said.
It also warned that the proposal could increase patronage in the black market.