Luxury Tax bill to address failure to levy ‘super-rich’

THE chairman of the House Committee on Ways and Means has filed the “Luxury Tax Bill” with potential revenues of P15.5 billion. In filing House Bill 6993 last Monday, Albay Rep. Joey Sarte Salceda said the single most crucial flaw of the country’s tax system is its failure to tax the rich.

“This failure exacerbates inequality and promotes the concentration of financial resources crucial to the economy in the hands of very few individuals,” said Salceda.

In response to this socioeconomic condition, the economist-lawmaker said the international and national organizations have recommended wealth taxes based on the net worth of so-called “super-rich” individuals.

“While morally sound, the practical problem with a wealth tax based on net worth is that capital is extremely mobile, and many countries offer ‘tax-haven’ passports to extremely wealthy individuals,” he added.

According to Salceda, the Philippines also has limited means to track wealth hidden in other countries.

The Senate has not ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (CMAT/MCMAAT), which the Philippines signed in 2014.

“This means we cannot invoke automatic exchange of information in tax jurisdictions where we suspect wealth of Filipino super-rich individuals are deposited. Absolute bank secrecy especially for foreign currency deposits will make enforcement very difficult if wealth is denominated in currencies other than the peso,” Salceda explained.

Luxurious consumption

ACCORDING to Salceda, “much of the estimated net-worth is in market-valued financial securities” and that the perceived value of these instruments changes every day.

The lawmaker added that the easiest way to tax wealth is through conspicuous or luxurious consumption and through taxation of immovable assets like lands.

According to the lawmaker, “consumption taxes can be imposed at the point of importation or sale, making them easier to enforce.”

“Similarly, property taxes on immovable assets are difficult to evade,” he explained. “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.”

Salceda said his measure sees a non-essential good as a good whose prices are beyond the reach of the bulk of consumers, and which are not significant or important inputs to other value-adding industries.

The lawmaker said this measure also increases the non-essentials goods tax rate from 20 percent to 25 percent.

Non-essentials goods

THE revenue potential of major items like luxury watches, luxury cars, private jets, sale of residential properties above P100 million, beverages above P20,000 and leather products above P50,000 could reach P15.5 billion at 25 percent rate with P62.1 billion estimated sales.

Salceda said 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, which is arguably a pollution and congestion tax but not yet a luxury tax. The tax on luxury residential properties will be on top of VAT and other taxes on its sale,” he explained.

The bill seeks to amend Section 150 of the National Internal Revenue Code, as amended.

The measure also directs the Department of Finance to issue the rules and regulations necessary for the implementation of this proposal within 30 days from its effectivity.