No excise tax on luxury watches

A quality watch is a must for many people, especially business leaders who consider the accessory an important part of their “shield”. For those who prefer luxury watches and who belong to a rare group of people who can pay a premium for one-of-a-kind watches, there has been good news recently about taxes on these goods.

Under the Philippine tax law, production taxes will be levied, assessed, and collected on certain goods such as alcohol, tobacco, petroleum, automobiles, and goods considered “non-essential”. The purpose is to discourage or reduce the use or consumption of these products and possibly redistribute income because only a privileged few are able to pay the premium.

As such, a 2021 affirmative ruling by the Bureau of Internal Revenue (BIR) stated that wristwatches made of precious metals imported by the luxury watch brand for sale in the Philippines were subject to a 20 percent excise tax because these were covered by Section 150(a). ) of the tax code. The BIR emphasized the second part of the ruling: “Goods made of precious metals, ornate, composite, or fitted with or imitation of precious metals or ivory…”, which according to the BIR report covers imported wristwatches. The Tax Code specifies that precious metals include gold, silver, platinum and other metals of the same or higher value; The imitations include sheets and alloys of these metals.

However, on June 29, 2022, the Department of Finance (DoF) repealed the BIR ruling, making luxury watches exempt from production tax. On the opinion issued, watches and watches are not “non-essential goods” under Section 150(a) of the Tax Code because they are not included in the specified clause. Referring to previous tax laws, the Ministry of Finance noted that wristwatches and watches were never among the enumerated goods considered to fall under the definition of “non-essential goods”.

Thus, it is evident that when Section 163 (renumbered to Section 150) of EO (Executive Order) 273 was carried over as Section 150 of the Tax Code of 1997 for purposes of 20 percent selective taxation, the enumeration in it did not think In the inclusion of wristwatches and watches,” according to what was stated in the ruling.

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The Department of Finance ruling also stated that declassifying the product as “semi-essential” did not immediately make it “non-essential” because it was the function – not the price – that dictated whether the item would be considered “semi-essential” or “non-essential.” A wristwatch has also been asserted to be “semi-essential” as it allows the wearer to keep track of time, as opposed to jewelry that is only worn for personal adornment and is therefore classified as “non-essential”.

The Treasury’s ruling to exempt luxury wristwatches from production taxes is good news not only for watch enthusiasts but also for companies that import this luxury item into the Philippines. With no excise tax in the equation, the estimated customs duties that importers have to pay will be reduced. Unlike value-added tax, which appears on the receipt at purchase, excise tax is taken into account in the pricing of imported goods for domestic sale. In turn, the market price will not rise significantly.

On the other hand, exempting luxury watches from production taxes reduces the revenue that the government can collect from those who can buy these products. If the government is unwilling to additionally tax luxury watches, what other initiative can it take to increase the additional revenue? Should the legislature pay to extend coverage of “non-essential” goods to other expensive items such as works of art?

While imposing or expanding the coverage of the excise tax is meant to get the rich to contribute a little more, the government must also be careful when imposing additional taxes because doing so could lead to a decrease in sales of these items, which in turn could lead to other problems such as business closures. and job loss. Considering the current economic situation of the country, the government should carefully weigh its course of action, particularly with regard to taxation and collection for the purpose of economic growth and development.

The author is Associate Director of Tax and Corporate Services at Deloitte Philippines (Navarro Amper & Co.), a member of the Deloitte Asia Pacific Network. For comments or questions, send an email [email protected]

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