The Market Monitor Minding the Nation's Business
The government does not impose a higher tax burden to luxury items and other nonessential goods, so says Finance Secretary Frederick Go; ergo, those consuming these commodities should pay up.
With this explanation came the announcement that the Department of Finance (DOF) is seeking to collect more from wealthy consumers through higher taxes on luxury and nonessential goods.
The trouble with this plan is that it increases the tax on using motor vehicles, which now would be defined as luxury goods.
The additional revenues to be collected will offset the expected loss from the proposed Progress Bill, which is expected to ease the financial burden on middle-class workers and microenterprises.
“The current tax system does not impose higher tax burden to luxury items and other non-essential goods, resulting in equity gap and untapped revenue potential,” the DOF said, noting that a progressive tax would minimize the direct impact on lower-income households.
Under the proposal, the DOF is looking to raise the tax rate on nonessential goods to 25 percent from 20 percent and expand its coverage to include private aircraft and recreational vehicles such as planes, jets, helicopters, jet skis, speedboats, sailboats and motorboats.
Currently, the law only covers jewelry made of precious and semiprecious metals, perfumes, toilet waters, yachts and vessels intended for pleasure or sports.
There are no estimates yet on the revenue impact of the expanded nonessential goods tax. However, in 2025, the government collected P307 million from said goods.
Another proposal is to increase the Motor Vehicle User’s Charge (MVUC), whose rates have not been adjusted for more than two decades.
Once imposed, the reform is expected to generate a total of P89.58 billion in additional revenues from 2027 to 2030, or an average of P22.39 billion annually. In 2027 alone, the higher MVUC is estimated to add P20.66 billion to state coffers.
The rate increases will be based on cumulative average annual inflation of 2.1 percent.
The annual charge for light passenger cars used privately or by the government will increase to P3,344 from P1,600, while that for similar vehicles for hire is set to rise to P1,881 from P900.
Meanwhile, the charge for private and government trucks, as well as trucks for hire, will climb to P6,170 from P2,952.
MVUC for buses used privately or by the government will increase to P10,935 from P5,232, while that for buses for hire will rise to P10,659 from P5,100.
For jeepneys, the annual charge will increase to P2,320 from P1,110. The rate for modern jeepneys, meanwhile, will rise to P3,132 from P1,499.
These reforms add to the proposed increase in automobile excise announced earlier, which would impose a 75-percent tax rate on vehicles priced above P8 million.
Earlier, the DOF said it projects to raise a total of P518.71 billion from 2027 to 2030 through offsetting measures that could compensate for the estimated P326.92-billion revenue loss from income tax exemptions under the bill.
The Progress Bill, announced by President Marcos during his State of the Nation Address, is expected to be passed this year although no congressman or senator has yet to sponsor the bill.