The Bureau of Customs (BOC) has warned that the proposal to impose excise tax on automobiles will discourage the inflow of investments in the auto industry.
In a position paper submitted to the House Committee on Ways and Means, the BOC said the imposition of excise taxes on cars would also adversely affect employment and job opportunity in the industry.
“This may ultimately translate, in the long run, to lower investment in the auto industry and job squeeze,” the bureau said.
“[The proposal also] runs counter to the intent of the government to revitalize and further advance the industry’s growth,” it added.
The proposal increasing excise taxes on vehicles is one of the revenue-offsetting measures under the Department of Finance (DOF)-sponsored Comprehensive Tax Reform Package, which seeks to lower the personal income tax rates. The BOC is an attached agency of the DOF.
According to the bureau, the auto industry is a major contributor to the country’s economic growth, since it accounts for 12 percent of the industrial sector output and 4 percent of the total GDP during the previous administration.
“Its long- and mid-term plans and program are based on the existing regulations, including the current excise-tax structure. Hence, any tax increase will have short-term negative impact on auto sales and revenues as a result of the unfavorable pass-through effects on consumer purchasing power,” the bureau added.
Under House Bill 4774, there shall be levied, assessed and collected an ad valorem tax on automobiles based on the manufacturer’s or importer’s selling price, net of excise and VAT.
The bill said if the net manufacturer’s price/importer’s selling price is P600,000, the excise tax will be 4 percent.
If the net manufacturer’s price/importer’s selling price is P600,000 to P1.1 million, the excise tax will be P24,000 plus 40 percent of the value in excess of P600,000.
If the net manufacturer’s price/importer’s selling price is P1.1 million to P2.1 million, the excise tax will be P224,000 plus 100 percent of the value in excess of P1.1 million.
If the net manufacturer’s price/importer’s selling price is P2.1 million, the excise tax will be P1,224,000 plus 200 percent of the value in excess of P2.1 million.
The bill also amends the definition of an automobile to mean: “Any four or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, or any other automotive power except purely powered by electricity. Provided, that for purposes of this Act, buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles.”
Meanwhile, in a position paper submitted to the lower chamber, Ford Philippines Assistant Vice President Josephine Gonzalez said the significant increase in tax rates proposed by the measure will be disruptive to the industry, translating to a substantial increase in vehicle retail prices and the natural contraction of the automobile market.
“This may, in turn, result in a reduction of excise-tax collections, negating the intent of the HB 4774,” she said.
She also said a gradual or a phased-in approach in the implementation of the rate increases is needed, providing the industry and the market a reasonable time to plan out and adjust to the regulatory change.
“We have observed that other sectors covered by the tax reform measures have been granted a phased-in approach in the implementation of the decrease or increase in taxes. We request that a similar approach be also applied to the auto industry,” Gonzalez said.
“A phased-in approach that introduces tax increases in a gradual manner over a reasonable period will facilitate a smooth transition to the new structure, avoiding the potentially disastrous spikes and dips in consumer demand,” she added.
According to Gonzalez, the auto industry, due to the nature of its business structure, requires a longer planning cycle. “A phased-in approach over a number of years will provide the carmakers time to adjust their business plans and minimize the disruption of the tax rate increases,” she said.
Dream killer
House Deputy Minority Leader and Makati City Rep. Luis Campos Jr. said higher excise taxes on low-priced automobiles “could dampen the hopes and dreams of many Filipinos to own a car”.
“Assuming Congress decides to eventually approve the additional excise taxes, we may have to stagger or space out its application, particularly on cars priced up to P1.1 million, to make it easier on the pockets of low- and middle-income families,” Campos said.
“For instance, with respect to cars priced up to P600,000, instead of the entire extra two percent excise tax slapped right away, it might be better to have the initial one percent kick in on the first year, and the other one percent on the second year,” he added.
The lawmaker, citing the AmBisyon Natin 2040 survey of the National Economic and Development Authority, said 62 percent of Filipinos want to own a car, in a country where 47 percent of households are carless, 37 percent have one car and 16 percent have more than one car.
Campos said the effect of higher excise taxes on the lowest and second lowest-priced cars should be deferred a year after households have reaped the full benefits of the individual income tax cuts that are also provided for in HB 4774.