The Department of Trade and Industry (DTI) is now soliciting comments from auto industry players on the Department of Finance’s (DOF) proposed excise-tax hike on automobiles, hinting that the proposal may dampen the robust growth that the auto industry is enjoying and may disrupt the rollout of its flagship manufacturing stimulus program.
The DTI’s move came on the heels of a DOF’s draft proposal to hike excise taxes on luxury goods, including automobiles, to offset other planned revenue-offsetting measures that form part of the DOF’s tax-reform package.
DTI-Board of Investments Director Corazon Halili-Dichosa commented that there’s no unified position yet on the part of the DTI, but the department is currently consulting stakeholders in the auto industry, especially in light of the takeoff of the Comprehensive Automotive Resurgence Strategy (CARS) Program.
“We have to see the effect of this program on demand, especially with the CARS Program. Will this offset what we’re trying to achieve? The study hasn’t been concluded,” Dichosa said.
While there is no estimated impact yet on the proposed tax hike on auto industry, Dichosa conceded there will be a softening of demand at the outset.
“It may curtail demand for auto on the outset, but we want to see the view of the finance [department],” she added. The CARS Program is the DTI’s manufacturing stimulus program created to attract investments in the auto industry, and make the Philippines an automotive hub in the Asean region.
Currently, vehicles locally assembled in the country face a $1,800 gap in production cost versus neighboring manufacturing countries.
The program aims to boost the local auto industry’s competitiveness by bridging this gap, essentially providing a $1,000-per-unit fiscal support through the CARS.
It entails a mandatory local production of body shell and large plastic parts as part of its localization requirement, and a 200,000-unit production requirement over the course of the program.
However, this is seen to hit a major snag as the DOF, now on high gear to pass a comprehensive tax-reform package, is looking at luxury goods as a possible offsetting measure to recoup revenues to be lost in lowering personal income tax.
Specifically, automobiles are seen to be affected by this luxury good excise-tax hike, jacking up the cost of automobiles, including CARS participating models.
The two participant auto players—Toyota Motors Philippines and Mitsubishi Motors Philippines—are under pressure in the CARS Program to sell at least 200,000 units to avail themselves of the incentives of the program, a goal that is now made even more difficult because of the DOF’s proposal.
According to an earlier BusinessMirror report, House Ways and Means Committee Chairman Dakila Carlo E. Cua said the excise tax on automobiles priced below P600,000, currently at 2 percent, will be increased to 5 percent.
Under the DOF bill, there shall be a levied, assessed and collected an ad valorem tax on automobiles based on the manufacturer’s or importer’s selling price, net of excise and value-added tax.
Under the measure, if the net manufacturer’s price/importer’s selling price is P 600,000, the excise tax will be 5 percent. If the net manufacturer’s price/importer’s selling price is P 600,000 to P1.1 million, the excise will be 20 percent of net manufacturing/importation price.
If the net manufacturer’s price/importer’s selling price is P 1.1 million to P2.1 million, the excise will be 40 percent of net manufacturing/importation price.
If the net manufacturer’s price/importer’s selling price is P 2.1 million, the excise will be 60 percent of net manufacturing/importation price.
Toyota’s enrolled model to the CARS Program, the Vios, has a suggested retail price of P800,000. Mitsubishi’s own bids, the entry-level versions of Mirage and Mirage G4, are priced starting at P550,000 and P570,000, respectively.
Industry stakeholders and the DTI are expected to draft their position paper in response to the DOF’s proposal in the coming weeks.