Progressive auto tax plan won’t affect industry growth: DOF

June 5, 2017

The domestic automobile industry will continue to thrive and sustain its growth momentum amid the Duterte administration’s plan to make the excise tax system more progressive, by among others, replacing a four-bracket system with a five-tier structure that will impose higher rates on the pricier luxury-car segment, according to the Department of Finance (DOF). In a statement on Monday, Undersecretary Karl Kendrick Chua noted that in other ASEAN economies such a Indonesia and Malaysia, automobile excise tax rates go as high a 125 and 105 percent, respectively, yet their luxury car markets continue to thrive. Reforming the excise tax system for automobiles is among the provisions of House Bill No.  5636 or the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN) now pending before the Senate. This measure, the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP), also aims to lower income taxes and to make up for the consequent revenue loss by plugging tax leakages, limiting Value Added Tax (VAT) exemptions and adjusting excise taxes on fuel, among other measures. HB 5636, or the TRAIN, was approved by a 246-9 vote with one abstention last May 31 by the House of Representatives before the Congress adjourned sine die. The TRAIN is a consolidation of the original tax reform bill—HB 4774—filed by Quirino Rep. Dakila Carlo Cua with 54 other tax-related measures. Chua said in Malaysia, luxury car sales grew by 3.9 percent in 2016, while in  Indonesia, the luxury car manufacturer BMW  recently expanded its model list and local car assemblyh for domestic Indonesian and export markets, because of high demand despite the high tax rates. The same is true in the Philippines, where Satoru Suzuki, president of Toyota Motor Philippines recently told media the company is  not revising its production output for 2017 even if it anticipates an initial drop in vehicle sales because of the looming car price increases under the tax reform package,  because he believes demand will pick up again soon. Chua said under the TRAIN bill, mass-market vehicles in the first bracket, such as the base model Toyota Vios, will only increase by around P13,000. “This means that even at 50-percent interest, which is a very high assumption even at the worst financing terms, the proposed tax rate for mass-market cars will only add at about P350  in amortization when spread over 60 months, which is the standard loan duration for cars. The additional take-home pay resulting from the proposed hefty personal income tax cuts can more than offset this,” Chua said. He clarified  that under the TRAIN bill, pick-ups, buses, trucks, cargo vans, jeepney/jeepney substitutes, and special purpose vehicles such as cement mixers, fire trucks, boom trucks, ambulances and off-road vehicles for heavy industries are excluded from the proposed auto excise tax adjustments. Variants  used as commuter vehicles or utility vehicle (UV) express units such as the Mitsubishi Adventure, Isuzu Crosswind,  Toyota Hi-Ace and Nissan Urvan that each cost between P800,000 and P1.3 million won’t be significantly affected by the adjustments, Chua said. DMS