Heeding Duterte's advice, Marcos wants tax exemption for pick-up trucks removed

MANILA, Philippines — President Ferdinand “Bongbong” Marcos Jr. has asked Congress to remove the tax-exemption that manufacturers of pick-up trucks currently enjoy, heeding the advice of his predecessor to beef up public coffers amid a shrinking fiscal space.

In a letter to Albay Rep. Joey Salceda, head of the Ways and Means Committee in the House of Representatives, Finance Secretary Benjamin Diokno said the removal of tax exemption is expected to net tax revenues of P52.6 billion from 2022 to 2026.

The proposal has been spelt out by Diokno’s predecessor, Carlos Dominguez III, in a fiscal consolidation plan tailored for then-incoming Marcos Jr. administration. The special tax treatment for pick-up trucks was granted by the Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law, the first package of a Duterte-era tax reform program.

The House Ways and Means Committee is currently deliberating the merits of the Passive Income and Financial Intermediary Taxation Act (PIFTA), the fourth package of ex-President Rodrigo Duterte’s tax reform plan that his successor wants to continue.

Diokno, who served as budget secretary for half of Duterte’s 6-year term, said a provision that would remove the tax exemption on pick-up trucks could be added to the PIFTA bill.

“Pick-up trucks were granted the special tax treatment for their utility as workhorses for small business owners and professionals in their livelihood,” the finance chief said.

“The Department of Trade and Industry has observed that manufacturers modify pick-up trucks to serve as passenger, leisure, or sports utility vehicles. This scheme allows manufacturers to circumvent the provision of the law and purpose of the exemption,” he added. 

As it is, removing the tax exemption could potentially hurt vehicle sales at a time manufacturers are trying to sustain a delicate recovery from the pandemic. Despite a rebound in sales, the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA) still missed their target in 2021.

READ: Local carmakers miss 2021 sales target amid pandemic struggles

Sought for comment, Domini Velasquez, chief economist of China Banking Corp., said the measure will plug gaps in the application of the exemption. 

“This will address the loophole in the original TRAIN Law where pick-up trucks are exempt even for private use. Moreover, this is largely a progressive tax,” Velasquez said in a Viber message. 

“Aside from generating much needed revenues, it will also be administratively easier to implement an across-the-board excise tax for all vehicles if all vehicles,” she added.

Separately, Leonardo Lanzona, an economist at Ateneo de Manila University, said the removal of tax exemption could fan inflation.

“While these measures are necessary, this will have implications on inflation and economic performance since the tax burden are just going to be transferred to the consumers,” Lanzona said. 

“This tax repeal does not solve the debt problem in the long term since it only creates an even heavier pressure to increase GDP growth. So, we need to ask: where will this growth come from?” he added.