House measure seeks 43% tax on luxury items

MANILA, Philippines — Only 0.0001 percent of the country’s population will bear the 43 percent taxes on “non-essentials” and on upscale real estate property being proposed in the House of Representatives.

“The easiest way to tax wealth is through conspicuous or luxurious consumption and through taxation of immovable assets (i.e. land),” Albay Rep. Joey Salceda wrote in his House Bill 6993, which also aims to tax “non-essential” goods like branded bags and jewelry.

“Property taxes on immovable assets are difficult to evade,” the chairman of the House ways and means committee further said. “An increase in real property tax rates across the board will be painful and counterproductive.”

“But proper valuation of luxury real estate (such as those in gated subdivisions and golf courses) will help increase revenues and make the tax system more progressive,” he wrote in his explanatory note.

Salceda’s measure aims to increase by five percent more the current 20 percent tax rate on “non-essentials goods,” making it 25 percent. Such goods cover items like luxury Louis Vuitton bags, jewelry, perfume and eau de toilette, yachts and wristwatches.

On top of Salceda’s proposed 25 percent are the 12 percent value-added tax for sales of real estate properties, and six percent capital gains tax, or a total of 43 percent tax once signed into law.

“The tax on luxury residential properties will be on top of VAT and other taxes on its sale. The non-essentials goods tax will be on top of all other taxes. The tax on luxury cars, for example, will be on top of the automotive excise tax,” he wrote.

The House official estimates government will rake in P15.50 billion yearly with such bill.

His list of luxury items – introduced in January – includes luxury watches, luxury cars above P5 million in price, private jets, residential property above P100 million per unit, beverages above P20,000 per bottle, and leather goods above P50,000 per unit.

“Other items, such as sales of shares in exclusive membership clubs (Manila Polo Club, Tagaytay Highlands, etc), jacuzzis, furs, all regatta equipment and antiques are also being considered, but the revenue potential could be limited, and enforcement costs could outweigh revenue potential,” Salceda stated in a previous media release.

He explained that increasing the non-essentials goods tax rate to 25 percent or 30 percent – on top of expanding the list – will generate between P15.5 and P18.6 billion in annual additional revenues.

Salceda has expressed openness to calls from Oxfam International for the imposition of luxury tax on non-essential items patronized by the super elite.

“Wealth induces luxurious lifestyles – what economists call conspicuous consumption. We can slap taxes on those items, since they (super rich) won’t mind paying them anyway,” he said earlier.

He was referring to Section 150 of the Tax Code, as amended, which currently imposes a 20 percent tax on the price of jewelry, perfumes and yachts, or those luxurious items favored by the super rich.

At this early stage, Salceda vowed that his “committee will definitely pass a measure expanding that list (of luxury items that will be taxed more), but we will discuss which items can generate the most revenue for the least effort.”

“Generally, the point of the debate will be what can be universally considered ‘luxury.’ To me, it is when an item is beyond reasonable reach of the vast majority of the population, and is not necessary for any essential function,” the lawmaker-economist explained.