Car dealers lament over looming excise tax bill

Last Monday, the House Ways and Means Committee held its third deliberation on the comprehensive tax reform package. Various members from concerned sectors in the auto industry were invited and present as the deliberations particularly zeroed in on provisions of the bill seeking to increase the excise taxes on automobiles.

Also present were representatives from the Bureau of Customs, Bureau of Internal Revenue, Department of Finance, Department of Transportation, Department of Trade and Industry, Land Transportation Office, Land Transportation Franchising and Regulatory Board, and other government representatives.

Chaired by Quirino Rep. Dakila “Dax” Carlo Cua, the committee also invited representatives from the Automobile Association Philippines (AAP), Association of Vehicle Importers and Distributors (Avid), and the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi), car dealers and distributors.

Finance Secretary Carlos G. Dominguez III previously said that the bill would help ease the worsening traffic problem in Metro Manila and other major cities like Cebu and Davao.

During the deliberation, he was heard to have said that they would be lucky to have the new taxes in effect by July of this year.

While he acknowledged that huge investments in public transport would be needed, he seemed to have zeroed in on the booming automotive industry by initiating tax measures to discourage purchase of new cars.

This seems to be the obvious choice for the secretary as the effects of these investments in public transport and infrastructure will still take many years to see fruit.

The automotive industry registered another banner year by selling over 400,000 units last year.

Rene So, president of Toyota Dagupan and also president of Toyota’s association of dealers from 2013 to 2016, said that it was hard to say how much the proposed new taxes would impact sales. “Definitely there will be an impact but it will be relative to the tax increase. If a new tax is imposed, sales for the motor industry will definitely drop. We try to be more conservative now,” he said.

When asked if this will actually help in easing the traffic congestion problem, he said, “The solution to traffic is really more road infrastructure. And the traffic problem should not be a reason for increasing the tax. And I feel the drivers should be more disciplined, and also be more aware of road conditions. For example, on Edsa, U-turn conditions change without warning, and motorists have to travel longer because of this,” he said.

Tey Sornet, who heads the Lica Auto Group with close to 40 dealerships of various brands like Chevrolet, Foton, Honda, Hyundai, Kia, Nissan, Subaru, Suzuki and Volvo, and is the newly appointed distributor for King Long commercial vehicles, thinks that the distribution of the tax bracket system is not equitable and predicts the emergence of a gray market of importers for the high-end segment.

“Definitely our sales will go down specially on the models within the P1.3 million and above price range, which will be hit the most. This will not help in solving the traffic issue definitely,” said Sornet.

He also thinks his group will have to recalibrate its sales strategies on models below the P1-million price range which will be the least affected by the tax increase.

John Mabasa, COO of Union Motors Group, who has a network of Mitsubishi dealerships, said “I agree that the levy should be more on higher value vehicles, resulting in a volume reduction of around 10 to 20 percent, and in putting a higher percentage of taxes on the initial implementation. Currently, to address the repercussions of this impending tax bill, marketing strategies are not being discussed yet. Instead, we are looking into downsizing our organization and doing a lot of cost reduction measures. Lastly, imposing an additional levy on vehicles will not solve the traffic condition.”

“Sooner or later, it will also catch up once the market has adjusted to its pricing level. Banks will also do all marketing strategies to make it affordable. In fact this excise tax issue is contrary to the CARS program extended to assemblers,” he added.
Luxury car purveyors have the worst outlook

Wellington Soong, purveyor of three British and two Italian luxury and supercar brands, Aston Martin, Land Rover, Jaguar, Ferrari and Maserati, foresees that the new tax system will shrink their segment by about 50 percent. “If this happens, we will most likely shut down. This is the reality.”

Soong, who was also present during the deliberations, said that he would ask the House committee to think “out of the box” by allowing the market to grow first and then reaping the long-term benefits later on.

By drastically increasing taxes, demand will take a nose dive and shrink the market. He intimated to the committee that his company only sold about 17 to 20 units of these exotic supercars annually, and that the new tax structure would increase the prices of Ferraris to as much as P50 million, discouraging anyone from buying one.

Willy Tee Ten, the distributor for luxury and high-performance car British brands MINI, Lotus and Rolls-Royce, and who operates a network of Nissan dealerships and the exclusive dealer for Nissan’s GT-R supercar said: “Regarding the excise tax proposal, we anticipate that it will greatly affect the sales volume specially for the premium segment. But please note that this segment is more or less just 1 percent of the total volume of vehicles sold. With the reduced volume, the government might end up getting lesser taxes. I hope they would reconsider the increase in excise tax of motor vehicles. If they want to reduce traffic, I suggest that we phase out very old cars especially in urban areas, and also hope the government can build more roads.”