Should you buy a new car now? How car prices will increase after the new excise tax bill

As expected, the Lower House passed last week House Bill (HB) No. 5636 proposing increases in excise taxes that will raise vehicle prices in the next two years.

HB 5636 will slap ad valorem tax on vehicles based on the manufacturer’s or importer’s selling price, net of excise and value-added tax (VAT).

The bill staggered the increase in automotive excise taxes into two phases starting next year until 2019.

For next year, excise taxes will go up to 3 percent from 2 percent at present for vehicles whose net manufacturer’s price/importer’s selling price is up to P600,000.

For vehicles priced over P600,000 to P1.1 million, the rate will rise to P18,000 plus 30 percent of value in excess of P600,000 from P12,000 plus 20 percent of value in excess of P600,000 at present.

Units worth over P1.1 million to P2.1 million will be slapped P168,000 plus 50 percent of value in excess of P1.1 million from the current rate of P112,000 plus 40 percent of value in excess of P1.1 million.

For vehicles worth over P2.1 million to P3.1 million, the
excise tax rate will increase to P668,000 plus 80 percent of value in excess of P2.1 million, compared with P512,000 plus 60 percent of value in excess of P2.1 million currently.

Vehicles priced over P3.1 million, meanwhile, will be taxed P1.468 million plus 90 percent of the value in excess of P3.1 million.

Rates will further go up in 2019, as follows:

Excise tax of 4 percent for vehicles with net manufacturer’s price/importer’s selling price of up to P600,000;
P24,000 plus 40 percent of value in excess of P600,000 for vehicles worth over P600,000 to P1.1 million;
P224,000 plus 60 percent of value in excess of P1.1 million for units priced over P1.1 million to P2.1 million;
P824,000 plus 100 percent of value in excess of P2.1 million for units worth over P2.1 million to P3.1 million; and
P1.824 million plus 120 percent of the value in excess of P3.1 million for vehicles priced over P3.1 million.

The Department of Finance (DOF) earlier said that under this excise tax regime, “basic cars will be taxed at lower rates while more expensive cars will be taxed at higher rates.”

Using the 2019 rates, DOF computations showed that the suggested retail price (SRP) of a Toyota Vios 1.3 Base will rise to P609,734 from P599,000 at present. The SRP was computed as net manufacturer’s price plus excise tax plus VAT.

As for a Mitsubishi Mirage G4 GLS, the current SRP of P740,000 will increase to P753,261.

A Toyota Innova 2.0 J worth P919,000, meanwhile, will see its price go up to P962,725 under the new excise tax regime.

A unit of Ford Everest Titanium 2.2 4×2 which is currently priced at P1.739 million will be sold at P1.995 million in 2019, DOF calculations showed.

Based on the latest DOF data, the government can collect an additional P14.1 billion in revenues next year from the higher excise taxes on vehicles under HB 5636.

In 2019, collections will rise to P23.4 billion; P24.8 billion in 2020; P26.3 billion in 2021; and P27.9 billion in 2022.

The additional revenues to be generated from higher vehicle excise will be equivalent to 0.1 percent of gross domestic product (GDP) in the next five years, DOF data showed.

According to the DOF, “additional revenues raised through [higher vehicle] excise tax will be used to improve traffic management solutions, and fund climate change-resilient infrastructure.”

Last Monday, the DOF said it expected robust vehicle sales to continue even as the higher excise taxes to be slapped on vehicles loom.

“In other Asean economies such as Indonesia and Malaysia, automobile excise tax rates go as high as 125 percent and 105 percent, respectively, yet their luxury car markets continue to thrive,” Finance Undersecretary Karl Kendrick T. Chua said in a statement in reaction to auto industry concerns that the new vehicle excise tax regime will dampen car sales.

But Chua said the five-tier structure under HB 5636 “will impose higher rates on the pricier luxury car segment.”

Chua noted that despite high excise tax rates, luxury car sales in Malaysia grew 3.9 percent last year, adding that in Indonesia, “the luxury car manufacturer BMW recently expanded its model list and local car assembly both for the domestic Indonesian and export markets because of high demand.”

“The same is true in the Philippines where Satoru Suzuki, president of Toyota Motor Philippines, recently told the media that 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 enough,” Chua said.

Also, Chua noted that under HB 5636, prices of “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 when automobile loans were financed at 50-percent interest rate per year, which is a very high assumption even at the worst financing terms, the proposed tax rate for mass market cars will only add P350 in amortization when spread over 60 months, which is the standard loan duration for cars,” Chua explained, adding that “the additional take-home pay resulting from the proposed hefty personal income tax cuts can more than offset this.”

The DOF recently said “gains from the lower personal income tax regime are more than enough to offset additional expenses from higher oil prices, car loan payments and inflation.”

To illustrate, the DOF said a buyer of the Toyota Vios model will save P13,832 while an Innova buyer will have a higher P22,652 in savings as their gains from lower personal income tax will offset the losses from other taxes.

Chua also pointed out that under HB 5636, “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 won’t be significantly affected by the adjustments,” Chua added.