CAMPI’s biggest challenge in 2017

The whole world was stunned when Donald Trump won the United States presidential election.

Over here, the Philippine automotive industry was stunned when the Department of Finance sent a tax reform package to Congress that would substantially increase the excise tax rates on new car purchases.

The proposed restructuring of the excise tax on brand new motor vehicles is just one of the issues that will roil the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) next year if Congress approves it.

Looking forward to 2017, CAMPI president Rommel Gutierrez said: “The biggest challenge facing CAMPI is how to sustain the momentum of growth of the industry. “Government policies and other market factors should not negatively affect the dynamics of new vehicle purchases and ownership. There is also a need to cope with increasing motorization through road transport infrastructure and development.”

The momentum of growth that CAMPI wants to sustain is reflected in a joint report of CAMPI and the Truck Manufacturers Association showing that in the first ten months, vehicle sales surged by 24.5 percent to 292,502 units, with both the passenger and commercial vehicle segments posting double digit growth.

Based on this year-to-date performance, Gutierrez had expressed confidence that the industry will hit its 2016 sales target of 370,000 units, up from the 350,000 forecast earlier.

Negative impact

But he is not so confident about the future as he believes that the higher taxes will have a negative impact on the industry’s sales forecasts which had projected the increasing demand for new motor vehicles to continue in the coming years.

The proposed excise tax increase on automobiles is not the only thing threatening to derail the Comprehensive Automotive Resurgence Strategy (CARS), the government program that aims to revitalize the auto industry by attracting fresh investments worth $1.2 billion, generating around 200,000 new jobs, and propelling economic activity estimated at P300 billion.

Only three slots in the program are available. Early this year, the Board of Investments approved the applications of Toyota Motor Philippines (TMP) and Mitsubishi Motors Philippines Corp. (MMPC) to join CARS, which offers P27 billion in tax incentives to participating carmakers.

TMP entered the Vios in the program while MMPC entered the Mirage.

Changing requirements

Recently, another member of CAMPI was reported to be seeking a change in the CARS requirements so that it could fill the third slot that has not yet been taken. This company proposes changing the requirement that a CARS participant has to produce 200,000 units of one model over that model’s six-year life cycle.

The would-be CARS applicant may have been encouraged by what a BOI official said when the program was opened for applications last January.

He said that if there is a slot that is not taken, then the inter-agency committee evaluating applications will have to evaluate it to a certain period, and most likely open the third slot for a certain model or kind.

Asked to comment, Gutierrez, who is a vice president of TMP, said: “The plans and programs of the enrolled participants are based on the requirements of the CARS program.

“Changing such requirements during the period of the CARS program may have a negative effect on its implementation. Changing the rules in mid-stream is not looked upon with favor.”

A thundercloud

Meanwhile, the prospect of higher excise taxes on new car purchases is hanging over the auto industry like a thundercloud.

A briefer sent by Department of Finance (DoF) Undersecretary Karl Kendrick T. Chua states that the DoF’s proposed reform would increase and simplify the computation of excise tax on automobiles.

“Simple tax administration—a new tax structure that will simply be based on full value, which is less complicated than the current tax structure,” the DoF briefer claims.

According to the DoF briefer, the proposal would “increase the lowest tax rate from 2 percent to 5 percent, and retain existing higher tax rates but the excise tax should be levied based on full value.”

This is the rationale given by the DoF for the tax reform: “A highly progressive tax to discourage purchase of automobiles, which causes heavy traffic congestion and environmental pollution, and to slow human inputs to climate change.”

Asked whether CAMPI has read the tax reform package and will soon issue a position paper, Gutierrez answered that CAMPI is studying the proposal of the DoF, and based on its study, CAMPI will consider, among other things, the negative impact not only on the industry but the economy as a whole.

“We need to understand the DoF’s proposal, hence, dialogue among stakeholders, including the DoF, is necessary,” he asserted.

Unrealistic proposal

Last month, the CAMPI head said that “The unrealistic proposal of new excise tax rates is tantamount to changing the rules in mid-stream. This is sending the wrong signal to existing and future investors.”

He expressed concern that “with the proposed measure discouraging people from buying new cars, the implementation of CARS could be derailed. Investments required under the program may have to be restudied and potential employment will not be realized.”

CAMPI members have been striving towards “Vision 2020,” its goal to sell half a million units by 2020, mainly through the CARS program. Now, with the DoF’s tax reform package hiking tax rates on new cars purchases, that vision may be fading.

At least, insofar as building new roads and infrastructure to cope with rapid motorization is concerned, the auto industry may be getting what it needs. Last week, the National Economic and Development Authority (NEDA) board approved 16 infrastructure projects nationwide worth P500 billion that have been prioritized by the Duterte administration.